If you are one of the many business owners in UK that submit their own value added tax returns, then chances are you have already heard about Making Tax Digital which will become effective as of 1st April 2020. MTD will have a substantial impact anyone who does their own returns, including accountants in business, accountants in practice as well as VAT registered business owners.
According to the HMRC, digital tax returns will help get rid of an £8 billion tax gap that comes as a result of unavoidable administrative mistakes. Ahead of the switch, MTD VAT has published a few tips on how to best prepare for this significant change within the HM Revenue and Customs. It guides small business owners on how to prepare for the shift and in this read, we are going to highlight some very essential things to keep in mind. There is a lot of information about MTD and therefore, we are going to break down into a comprehensible form to help you digest it better. So, if you’re a business owner who does his or her own VAT returns, pay attention to these tips from VATGlobal.
Why The Change To Begin With?
Well, the HM Revenue & Custom feels like digitizing tax is a crucial part of the government’s plan to make it easier for people, and businesses to stay on top of their affairs and ensure that their tax is right. The aim of HMRC is to become one of the most advanced tax administrations in the globe digital wise. MTD is making a complete change on how the tax system operates with an aim of making it more efficient, effective and easier for all VAT tax payers.
How Do They Intend to Achieve This?
The HMRC intends to limit the current gateway for the mandated parties. VAT registered firms with a taxable turnover above £85,000 threshold will be required to utilize the MTD service to keep their records and utilize software such as MTDfVAT to submit their returns. The exception to this rule is a small group of VAT registered businesses with sophisticated requirements. The exceptions include:
- The business is a part of a VAT Division
- The business is a trust
- The business is based overseas
- The business makes VAT payments on account.
- The business isn’t a for profit organisation that’s not set up as a company.
As part of preparing for the pilot, HM Revenue & Customs continued to talk to stakeholders and listened to their concerns regarding the entities being ready for MTD. As a result, they decided to delay the mandating of MTD for these enterprises until 1st October 2019. This is to give them adequate time to test the service before it’s compulsory for them to jump on board. That being said, here are a few tips to ensure that your business is ready for MTD:
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Do Your Homework
It is imperative that you know what this entire process is about. It is not complex to explain, but it can be overwhelming if you know nothing about it.
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Register as a Client
It is essential to set up a Client Services account in order to be able to register and set your business up. After signing up to the MTD pilot, you’ll become more familiar about the process.
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What If You’re Already Storing Your Tax Data Digitally?
Given that we are in a digital landscape, you might be already holding your returns data digitally. However, this does not imply that you’re already MTD compliant. You will have to get a HMRC approved software to make sure that you’re compliant.
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Choose The Right Software
It goes without saying that bookkeeping is essential in any business. If you do not want to shift from spreadsheets, that is okay. In such a case, you can get a bridging accounting software such as MTDfVAT if you have a VAT number. Such a solution will enable you to keep your current way of working, and still become MTD compliant. Once you’ve registered for Making Tax Digital, there’s no going back. The good thing is that after setting up, the rest is a walk in the park.