The Making Tax Digital Deadline Has Arrived – Here’s What You Need To Know
From next week, Making Tax Digital (MTD) will be in effect, meaning UK businesses will be forced to abandon paper-based accounting for good as they now need to process their VAT returns digitally moving forward. However it seems that even with less than a week to go until this legislation officially becomes law, the government is still having to encourage businesses to sign up to the HMRC Making Tax Digital initiative. According to government statistics released this week, almost 1.2 million businesses have still yet to register for the service, the equivalent of only 4% of those mandated to be MTD ready by April 1st.
This suggests that a lot of businesses are still evidently not quite certain as to exactly what they need to do to comply with this new legislation. Therefore to offer a little bit of clarity, we’ve put together this short guide as to why Making Tax Digital has been introduced and offer advice as to what your business needs to do, and when, in order to avoid any penalties.
Why has Making Tax Digital been introduced?
Making Tax Digital is part of HMRC’s wider digital strategy to make it easier for businesses and other organisations to ensure their tax returns are kept accurately and in order. The MTD initiative is also hoped to reduce taxpayer errors that significantly impact the proportion of the tax gap, the difference between tax paid and tax due. Through a switch-over to digital VAT submissions, HMRC believes that businesses will be able to better manage their financials and therefore help to reduce the number of tax errors made.
When will this affect your business?
From the beginning of the first VAT period after the 1st of April, any VAT registered business with a turnover above £85,000 will legally need to keep digital records and make VAT submissions via HMRC recognised accounting software. For trusts, not-for-profit organisations, VAT groups, public sector entities, local authorities and traders based overseas, there will be a requirement to comply with MTD from the beginning of the first VAT period starting after the 1st October 2019.
Although MTD only applies to VAT currently, some time after April 2020 Income Tax and Corporation Tax will also be included in the initiative, with a pilot scheme for Income Tax already underway.
What does your business need to do to comply?
To comply with the requirements of MTD, the software your business uses must be able to:
- Keep records in a digital form
- Preserve digital records in a digital form
- Create a VAT return form the digital records
- Provide HMRC with additional VAT data on a voluntary basis
- Send and receive information from HMRC via the API (Application Programming Interface) platform
In order to meet these requirements for submitting digital VAT returns, businesses must ensure they have HMRC recognised accounting software that complies with MTD.
Fully integrated as part of our main business management software system, OrderWise Accounts is fully accredited by the ICAEW and also HMRC recognised for submitting digital VAT returns. Businesses can find OrderWise on the HMRC approved suppliers list HERE. To learn more on how OrderWise Accounts can help your business get Making Tax Digital compliant, watch our video HERE.
How will Making Tax Digital help my business?
Using accounts software instead of paper documents and spreadsheets will not only help to eliminate errors and improve accuracy, but will in-turn also promote better financial reporting that helps with credit control and cash flow management. By adding greater automation into how your VAT returns are submitted, the switch to digital will also reduce the time, effort and stress it currently takes to prepare and file your business’ tax affairs.
If you would like more advice on how OrderWise can help your business with Making Tax Digital compliance, contact us on 01522 704083.