Making Tax Digital is coming. And it’s coming soon.
From April 2019, the government intends to make it much easier for businesses to keep on top of their taxes through their revolutionary new HMRC initiative Making Tax Digital (MTD).
A simpler, more effective and efficient UK tax system – which aims to be fully digitalised by 2020 – will mean the end of self-assessment.
Every year, HMRC loses £9billion because of taxation errors, which they believe is partly due to the way businesses declare their income.
So, by digitising the tax system, not only will businesses gain help in getting their tax submissions spot-on, but HMRC will drastically reduce their overheads.
What is Making Tax Digital?
If your company has a turnover above the VAT threshold of £85,000, then you will be required, from April 2019, to maintain digital records using compatible software, and provide quarterly updates to HMRC.
Smaller businesses, with an annual turnover of less than £10,000, will be exempt, although they can voluntarily choose to use the MTD system.
HMRC have set out the four foundations of Making Tax Digital:
1 Better use of information
Businesses will not have to give HMRC information it already has, or they can get from the likes of employers, banks, building societies and other government departments. Digital tax accounts for all will mean customers can see the information that HMRC holds and be able to check at any time that their details are complete and correct.
2 Tax in real time
Businesses should not have to wait until the end of the year, or longer, to know how much tax they should pay. HMRC will collect and process information affecting tax as close to real time as possible, to help prevent errors and stop tax due or repayments owed building up.
3 A single financial account
By 2020, businesses will be able to see a comprehensive financial picture in their digital account, in the same way they can with online banking.
4 Interacting digitally with customers
Businesses will be able to interact with HMRC digitally at a time convenient to them. They already have access to a digital account which will present them with a personalised picture of their tax affairs. Digital record keeping software will be linked directly to HMRC systems, allowing businesses to send and receive information directly from their software.
What is the timeline for Making Tax Digital?
- HMRC started a live test pilot in July 2017 to test and develop the MTD service, with businesses already beginning to keep digital records
- In the spring of 2018, a live pilot for MTD for VAT began
- From April 2019, VAT-registered businesses will be expected to keep digital records and submit quarterly returns for VAT purposes through their accounting software. There is no settling-in period – you MUST be ready by April 1, 2019
- From April 2020 and beyond, corporation and income tax will follow suit, so business with income between £10,000-£85,000 will be required to follow the same processes
What is a digital record?
Digital records are a digital image or copy of a paper record (such as a photo) that can be held in an electronic or digital format, which can be accessed on a desktop computer, a laptop, tablet or mobile phone.
The record must include the date, amount and category of each business transaction
A digital link will then allow that data to be imported, or exported, between programs without the need for manual intervention.
What will it cost my company to comply with MTD?
If you already use accounting software, then you will need to check it is compatible with HMRC.
Latest versions of Sage200cloud are already compatible with the requirements for MTD, but there are a variety of options for our customers who are on older versions of the software. Visit our special page here to find out more.
If your business doesn’t use digital software, relying on paper or Excel, then you will need to implement MTD-enabled software. Now is a great time to look at the range of Sage software that is available to your business.
Will penalties be incurred if I do not comply with MTD?
In a word: Yes. HMRC will penalise you if you fail to use Making Tax Digital.
How can Sage help?
It would be better if you didn’t receive a fine, so there are a couple of Sage options available to get you on the road to making tax digital as soon as possible. You could either:
- Upgrade to the latest version of Sage 200cloud, which is fully compliant with the new legislation
- Or implement Sage’s MTD submission module
Upgrading to the latest version of Sage 200cloud means that, in addition to becoming compliant with HMRC, you’ll also take advantage of the latest features and technology with the Sage 200cloud product.
If you don’t wish to upgrade your version of Sage 200, or for whatever reason you cannot, Sage has created a piece of software that will sit alongside your current Sage 200 system.
What do I need to do next?
In essence, you have to ensure you meet the deadline.
EBS want to make the process of Making Tax Digital as smooth as possible for you, and we are committed to helping your business through the transition.
What needs to happen next depends on your version of Sage 200 and whether it will be compatible with the changes.
More than 80 per cent of our customers will need to implement a change to their system, and it’s important to act sooner rather than later to ensure you remain compliant.
If you would like to have a chat with us about how you can meet the deadline, please call us on 0121 384 2513 for a chat, or use our online contact form on our Making Tax Digital page.