Save the date – April 1st 2019. Maybe you’ve heard. This is the date of the revolution. How you and HMRC handle your tax affairs will never be the same again. This is your all-you-need-to-know, step-by-step guide to the new procedures. We’ll answer these questions
- What is MTD?
- Does MTD apply to my business?
- Why is it being introduced?
- Will MTD make my business life easier or more difficult?
- What do I need to do?
What is MTD?
Let’s hear it from the horse’s mouth; from the HMRC website
“Making Tax Digital is making fundamental changes to the way the tax system works – transforming tax administration so that it is:
- more effective
- more efficient
- easier for taxpayers to get their tax right”
From April 1st this year, all qualifying businesses must use the HMRC MTD software to submit their quarterly VAT returns. You’ll be able to do this directly, via the online accounting software, Xero. Here’s the good news! We’re a certified Gold Partner in this system. If you’re not familiar, we’re here to help.
Starting, at the earliest, in April 2020, whatever the size of your business, you’ll keep all your tax information in a digital account. If you’re not already, you’ll need to use compatible software, such as Xero. Every transaction you make will be uploaded and updated in real time. This means that you’ll pay by direct debit tax every quarter.
Does MTD apply to my business?
Almost certainly. Does your business turn over more than £85,000 (the current VAT threshold)?
Then the key date for you is April 1st 2019 when phase 1 kicks in. This is all about your VAT returns. You’ll find out more below.
If your business turns over less than £85,000 and you’re not registered for VAT, then phase 2 of MTD will apply to you. This starts, at the earliest, on April 1st 2020 and will apply to all businesses, regardless of size (more about that below). This phase relates to your annual tax returns.
There are one or two rare exceptions to these criteria. If you’re unsure, then call 01908 978500. We’d love to help.
Why is MTD being introduced?
HMRC is bringing in this scheme to make the entire process of administrating, calculating and paying tax simpler and more efficient, for both themselves and for your business.
Will MTD make my business life easier or more difficult?
You might be surprised to hear that managing your business taxes should become a whole lot easier. Here are likely benefits –
By submitting your tax information every three months, you’ll no longer suffer the stress of meeting dreaded end-of-year deadlines.
Less paperwork? More like, no paperwork.
Your cloud accounting software will automatically record every single business transaction. This will be checked against your quarterly submissions to HMRC.
Fewer nasty tax shocks
Tax will be calculated quarterly, so you won’t have large tax bills building up. Your liability will be quarterly, so you’ll be paying a little, more often.
More chances to pay less tax through accurate planning
Businesses that are up-to-date on their tax obligations are much better placed to strategically manage their bills, with a chance of keeping them as low as possible. For example, armed with more accurate information, you might choose to increase your retirement contributions or reinvest in your business.
Any disadvantages of MTD?
Well – we struggle to find any. Certainly, we can’t see any reason to object to having greater real-time information about your business’s tax position. It’s true that, at first, you might have to get used to the new processes. It depends on your own approach to change as to whether you regard these changes as beneficial
Compulsory use of technology
HMRC will require you to submit your returns online, through an online accounting software.
More reporting deadlines
While VAT returns have always been due quarterly. For income tax and corporation tax, the annual filing of returns will switch from annual to quarterly, but it will be pretty much automatic.
Loss of privacy
You might feel uneasy that some of your electronic transactions will be visible to HMRC. But you shouldn’t need to worry – you’ll be able to review the data and fix any mistakes prior to submission.
What do I need to do now?
That depends on how up-to-date you are. If you already use Xero, the answer is ‘very little.’ This systems are geared up for the switchover on April 1st. If you don’t use cloud accounting software, then you’ll need to set it up. But don’t worry. Regardless of MTD, you’ll find there are tremendous advantages to using these platforms – all kinds of efficiency benefits with almost every aspect of your accounting procedures.
Just bear in mind
Here at Mad Hatters Accountants, we’re MTD experts. We’re perfectly placed to guide you through the switch to Making Tax Digital. All it takes to give you peace of mind is to pick up the phone. We’ll be delighted to hold a no-obligation conversation and talk you through the process.
Call us on 01908 978500
Send us an email.
Remember – we’re here to help