Making Tax Digital – How ready are you?
Making Tax Digital – or MTD as it’s known – is the biggest shake-up in the UK tax system in a generation. It involves a range of HMRC initiatives which will see the digitisation of tax reporting for individuals and businesses. Making Tax Digital for Business (“MTDfB”) is the Government’s flagship policy to move all business-related tax reporting online with the aim of making it more accurate, more reliable and more efficient.
While the 1 April 2019 implementation date remains in place for most businesses, HMRC has also announced that mandatory use of MTDfV (for VAT) by certain organisations with more complex VAT requirements has been deferred to 1 October 2019, for the following VAT registered entities:
- Trusts and unincorporated charities
- Local authorities and some public-sector entities, including Government departments and NHS Trusts
- Public corporations
- Overseas businesses which are UK VAT registered but do not have an establishment in the UK
- Businesses with one or more of the following VAT
- VAT group registration
- Divisional VAT registration
- those required to make payments on account
- those who use the annual accounting scheme.
How should you prepare for MTDfV?
MTDfV is a significant challenge for businesses as it introduces completely new technology for completing VAT returns over a relatively short period of time. It will also be particularly difficult for larger businesses with sizeable and complex accounting systems to adapt them to comply with the requirement for full digital linkage by 2020.
This checklist will help businesses plan for compliance with MTDfV:
- Determine the date on which MTDfV becomes mandatory for your organization.
- Review the software products on the market to consider which will best meet your needs to comply with the requirements to use bridging software to submit VAT returns under MTDfV from 1 April 2019.
- Review your current accounting systems to map the VAT audit trail and identify areas where digital links will be required.
So how is all of this going to benefit you?
While MTD sounds like a burdensome process to get started there are many benefits to quickly be realised. Firstly, seeing your tax balance before your year end will help to prevent errors and stop tax due or repayments owed building up to a lump sum at a later stage. This allows key personnel to act upon any potential problems immediately.
As all information is stored in the Cloud there is no need to worry about data going missing or files being lost or damaged. It also means you can access your tax information from any device and be able to logon wherever and whenever you like, hugely benefiting businesses and individuals alike and allowing them to get a better grip on their finances.
How is all of this going to “trouble” you?
The new manner of taxing is likely to make the process of managing your tax easier in the long run. However, the implementation of this new taxation system will be difficult, and it will not come without its problems. Many individuals and businesses are already struggling to come to terms with exactly what the new system entails. Failing to fully grasp what the new system entails can cause many issues. This could lead to not meeting the responsibility of paying taxes which could in turn cause more problems, such as fines or untimely attention from HMRC.
Therefore, by taking steps now to learn about how to switch to a digital system and seeking specialist support, businesses can ‘future proof’ their accounting software and ensure they are fully compliant in good time.
Blog written by Binod Dongol
Talk to Barnes Roffe today