What Does Making Tax Digital Mean for Your Business

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By now I’m sure you’ll have come across the term “Making Tax Digital” or “MTD” as its commonly known but is it really a big deal?

The short answer is yes and it’s heading our way soon so I thought we should have a quick run through of what it means to you and how you can prepare.

What is MTD?

Here’s what HMRC says;
Making Tax Digital is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs - meaning the end of the annual tax return for millions.

Well that’s nice the government cares….

In reality HMRC wants your tax quarterly rather than annually and the first step is quarterly reporting. (quarterly payments will certainly follow but there’s no date for that yet)

The end of your annual tax return sounds great until you realise that HMRC will eventually want a quarterly tax return!

Who does it impact?

Eventually every business will be involved but in the first phase only businesses that are VAT registered will be required to submit data digitally.

The logic is that VAT registered businesses already prepare information quarterly so it’s a smaller step to get these businesses to provide additional information when submitting their VAT returns.

When’s it coming?

For all VAT registered businesses from April 2019 which seems a way off but depending on how you currently provide your data adapting to a digital solution could require some time and planning.

What will be required?

At the moment when your VAT return is submitted only the totals for Net Sales, Input and Output VAT are collected and if HMRC wishes to drill down into the data behind the return they have to contact you for the additional information.

In phase 1 its expected the detailed transactional information behind the VAT return will also be sent. This includes the date of each transaction, value and description which will enable HMRC to review each return in more detail.

Moving further forward its anticipated that some form of profit and loss information will eventually also be required as without it paying tax quarterly will not ever be possible.

What will be the impact on your business?

If you have excellent records which are updated monthly, reconciled to your bank account and stored on a compliant digital solution such as QuickBooks or SageOne then MTD will be a breeze..

If however you currently drop off an A4 folder of papers with your accountant or email them an excel spreadsheet and leave it to them you’ll likely face a significant increase in fees. This is due to your Accountants being required to present the detailed information digitally and as MTD evolves the information required will steadily increase.

What will be the benefits?

They say every cloud has a silver lining and I don’t believe MTD is all bad for the following reason.

Every successful business I’ve ever come across has some internal financial reporting (normally a monthly management report) yet 90% of small businesses owners don’t review their key data regularly.

My hope is that MTD will force good practice on all business owners and the benefit will be an increased number of success stories and vastly reduced number of failures due to a poor financial management.

By eventually forcing all small business owners into reporting key data I believe we have an opportunity to train all small business owners how to use this data to manage their business and by doing so give them the same tools and skills available to most successful entrepreneurs.

We’re a long way off but an Accountant can only dream!

What you can do now to prepare?

If you are already using a digital solution great, the next step is to ensure the person in your firm that’s responsible for data entry is a trained or qualified bookkeeper and that they have a good understanding of VAT rules.

If you’re not digital yet then no need to panic you can use the next year to really get organised. My advice is to move to a digital solution 3 months before your next yearend (before Jan 2019) and run both your current system and the new one in conjunction for 3mths.

2 Options to make your life easier

Software we recommend – QuickBooks or SageOne, both companies are committed to continually updating their software and ensuring its compliant. Both are cloud based systems with automatic bank feeds and handy apps.

Please use a trained bookkeeper – when used correctly digital software is fantastic value for money, providing you with accurate and current data but the biggest issue I see with digital systems is they are promoted as being so simple anyone can use them and its just not true.

Simple input errors will render all the fancy reporting tools completely useless and what could have been a timesaving and game changing tool for your business is now just a time-consuming admin task for both you and your accountants.

Whoever is imputing your data make sure they have been trained, if not get them some formal bookkeeping training it will more than pay for itself.

How we can help?

Don’t forget we’re here to help. We can provide discounts on software such as QuickBooks and SageOne to save you money or we can provide you with a “Done for you Service” if you would rather outsource the headache completely.

Final Thought

April 2019 will soon be here and if you need to switch to a digital solution 3mths before your next yearend is the best time so you may need to take action sooner rather than later.

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