MTD – The clock is ticking
Making Tax Digital, are you ready?
On the journey to make ‘United Kingdom truly Digital’, businesses need to buckle up as they only have a week left from now to take quick measures for compliance with the new ‘Making tax digital’ rules’ which is one component of the government’s digital initiative, introduced last year.
Beware of the deadline
Under the new MTD regime, every VAT registered business in the UK with a taxable turnover of over £85000 will be required to store their financial records digitally and submit their VAT returns via MTD compatible software such as Quickbooks or Xero. Businesses that are being directly affected by the new rules must ensure their compliance with the new regime by 7th October.
Any business failing to ensure compliance by the deadline will have to face tax issues and penalties, so it’s very important for small businesses to start taking the necessary measures urgently, as they only have a week left. If you are unsure about where to start, try speaking to your business accountants who should have a team of trained VAT Accountants to help.
Dates to remember
VAT registered businesses have already been affected by the first VAT period that started on 1st April. The businesses that were filing monthly VAT returns and came under the scope of MTD, were required to file their VAT returns by 7th June. However, If filing is done on a quarterly basis, the following are the deadlines you must keep in mind.
|1st April-30th June||7th August|
|1st May-31st July||7th September|
|1st June- 31st August||7th October|
HMRC has already issued more than 100,000 warning letters to VAT-registered businesses who have missed the August deadline, however, it is assured that no fines and penalties will be imposed because of the new MTD regime’s first operational year.
It is stressful news for business owners, as they have to sort out their paperwork and digitise it, and in some instances, they may not even have a clue to what they should be doing next. Instead of clamping down and wasting time on unnecessary tasks, business owners should start speaking to accountants or an accounting firm nearby, to get a detailed overview of what Making tax digital is really about.
What is Making Tax Digital really about?
Making tax digital is part of the government’s broader initiative ‘Digital Britain’ which is an effort to make the entire tax administration more effective, more efficient and simpler than it was ever before. It aims to provide ease for taxpayers in the UK and help them file accurate and timely tax returns through the implementation of a digital tax regime. If your accountants have not already moved you to the cloud it might be time to switch and look for a new accounting firm or chartered accountant.
How is it going to add value?
Once MTD fully implements, you will no longer have to worry about recompiling and sorting your financial records to submit your various tax returns. This system tends to eliminate unnecessary paperwork, which previously led to inaccurate and incorrect filing of tax returns. Moreover, it has been built at a capacity that will allow businesses to get a better hold over their cash flow and provide them with a clear picture of where their business financially sits in the market. MTD is all about using digital tools to make it easier to prepare and submit tax returns.
In addition, by submitting your tax returns digitally either through a compatible software or by making use of cloud accounting technology, you will be able to access more reliable information, gather more reliable data and will be able to introduce a greater collaboration with other businesses in the industry. You should look for digital accountants who are familiar with such technology and can prepare you for MTD.
Making Tax Digital for VAT: a step by step guide
We have provided a step by step guide for VAT registered business owners who have not yet registered themselves with the new tax regime. Here are the steps to register yourself:
- Use a Making Tax Digital compatible software
- Register for MTD
- Complete the verification process
- Authorization of the software for MTD
Use an MTD compatible software
You have two options to choose:
- Utilize a compatible software package that enables you to digitally record and submit your VAT returns
- Utilize bridging software to link other non-compatible software packages to HMRC systems.
We advise you to use cloud software as it provides the most effective solutions. Cloud software has the potential to reduce potential problems for you to meet the new digital requirements, and moreover, it does not need to be updated manually and does not host any bugs or errors.
Register for Making Tax Digital
You need to quickly register for MTD with HMRC if you haven’t already registered yourself. You will have to log in to your HMRC account from an MTD compatible software once you have registered yourself on HMRC’s website. You need to remember that it might take up to a week for HMRC to verify you. Speak to a VAT Accountant if this seems too complicated for you to do.
You will receive a confirmation email from HMRC within 72 hours after successfully signing up, with no further financial information required. Make sure to check your Spam folder if you do not receive any official email within that time.
You also need to ensure that you sign up for the account 4-5 days before the deadline, as the verification process can take longer.
Authorization of the software:
It is very important to authorize your software before you submit your VAT returns. You can contact your software supplier if you don’t know how to do it, or a simpler method would be to let your business accountant do it for you. Try speaking to your business accountant first as they might have already done this for a number of their clients already.
Businesses have an opportunity to improve their financial systems and are in the position to save more money and time by utilizing the new and efficient digital tax system. However, there are a few considerations to keep in mind, innovations always tend to bring about new complications and a change that has to be managed. It is therefore very important to stay up to date on the notifications posted by the government regarding tax reforms and laws, to avoid any discrepancy or inconvenience in the future, alternatively hire expert Business accountants so you can focus on growing your business.
Clear House Accountants are specialist Accountants in London who have years of experience helping businesses prepare for compliance changes to help them stay ahead of the competition and be prepared for new and complicated regulatory changes. Speak to us to learn more.