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Making Tax Digital was first announced in 2015 and comprises the first stage of the Government's plan to modernise the UK's tax system. The scheme aims to improve the efficiency of the current system for business owners and individuals with MTD for VAT having started on 1 April 2019.
With these new changes now in full effect it is important that businesses review their VAT process including their accounting and bookkeeping software to ensure a smooth transition into the new system.
We've successfully helped our clients implement the changes they needed to make to comply with HMRC's Making Tax Digital scheme, with many asking:
You can find out more information about Making Tax Digital below, or by reading our previous blog updates on Making Tax Digital.
Making Tax Digital is a scheme by HMRC to improve the efficiency of the tax system. For VAT registered businesses with a taxable turnover above the VAT registration threshold (currently Ã'Â£85,000), you will be required to keep and send VAT returns using Making Tax Digital approved software.
The idea is that HMRC will receive information electronically and will be able to improve the time it takes to process the submission of VAT returns whilst reducing the risk of errors and misrepresentation of VAT liabilities.
Making Tax Digital is not the same as filing your tax returns online and comprises new processes including more regular updates of tax information. Making Tax Digital for businesses provides owners with better access to the documents HMRC hold regarding their accounts and a greater understanding of their current VAT and other financial commitments.
Making Tax Digital affects all types of businesses, including sole traders, partnerships and limited companies that have a turnover above the current VAT threshold of £85,000. Now Making Tax Digital is in full effect, these businesses are required to store and submit their financial information digitally.
Making Tax Digital is compulsory for all business meeting the above VAT threshold figure and businesses can be signed up voluntarily if the taxable turnover is below the VAT threshold figure.
HMRC will not provide free software for Making Tax Digital. Businesses will be encouraged to seek the professional guidance of their accountant or bookkeeper who can assist them in choosing the correct software for Making Tax Digital returns or they can review the available software on HMRC's website - find software that's compatible with Making Tax Digital.
AMR Bookkeeping is helping businesses throughout the UK with a Making Tax Digital health check service that assesses your businesses bookkeeping and software processes to provide professional guidance on complying with the new rules surrounding Making Tax Digital for VAT. By undertaking a review now will mean that businesses are prepared for the future changes to income and corporation tax which HMRC plan to bring under the Making Tax Digital scheme.
Our team is also happy to help businesses with a turnover of less than £85,000 that are not currently required to submit their returns digitally.
The Government has outlined four main advantages of the Making Tax Digital scheme:
With Making Tax Digital, you will be able to clearly see a complete overview of your tax liabilities. The new digital system for tax will increase accuracy when reporting with information more easily available.
Making Tax Digital for VAT means businesses must keep digital records and file VAT returns using compatible bookkeeping software.
Records you need to keep for MTD include:
There are a variety of software suppliers that are now Making Tax Digital compliant. Whilst you may not necessarily need to change the software you currently use, an update may be required. Whilst this may be all that is required of the majority of businesses, it is a good idea to review the software you have chosen to make sure that you are using the most efficient system for your business.
HMRC is not charging customers to move over to the new system. Costs may be incurred by businesses that need to update their internal admin processes and current bookkeeping software to ensure MTD compliancy.
In addition to this, new software may require training which can also incur costs to your business. Businesses can benefit from the guidance of professional bookkeeping providers that can assist in navigating MTD, whilst advising on the most suitable and effective bookkeeping software solutions. We are helping a number of clients upgrade their software package as well as training - find out more about our bookkeeping software training here.
If you're scratching your head wondering what you need to do as part of the new Making Tax Digital tax system, speak to one of our bookkeepers here at AMR Bookkeeping. We're here to help businesses of all sizes adjust their reporting and bookkeeping processes to make the switch to MTD cost-effective and hassle-free.
Our bookkeeping team can be contacted here so we can discuss the requirements of your business and how best we can help you.