Making Tax Digital (MTD) is HMRC's term for submission of tax information online. The revised implementation date was announced in July 2017 and now we have a little more information about what will be expected.
From April 2019 VAT registered businesses over the VAT registration threshold (£85,000 for 2017-18) will have to submit their monthly or quarterly VAT returns online through their accounts software. VAT registered businesses below the VAT registration threshold will not be required to but can submit in this way voluntarily. If you submit annual VAT returns you will be able to continue to do this. Any manual adjustments to your VAT return will need to be made within the software prior to it being sent to HMRC.
Most accounts software will be set up to enable you to do this by the time you need to do it and many have that facility now. However older desktop software packages may not provide you with the option to submit online directly from your software and therefore you will need to upgrade to a newer version. It will be worth talking to your accounts software provider to find out when the facility will be available so that you don't purchase a new version and then find it hasn't yet been updated and you need to purchase another version.
From April 2020 the self employed, sole traders and landlords (with over £10,000 rental income per year) will be required to submit a record of their income and expenses every quarter directly to HMRC through their accounts software. Whilst there may be an option to submit this information from a spreadsheet by linking it with some other software (which is not available yet) you will be encouraged to use accounts software which will be able to submit the return directly from the software in a format predetermined by HMRC.
The quarterly return submission will have a deadline of 30 days from the end of the quarter. There will be the opportunity to submit these returns monthly. A final return will need to be made by 31 January each year to show any adjustments to the figures submitted in the previous 4 quarters. The information submitted to HMRC will be summary figures only as they are now for VAT.
Your accounts will therefore need to be kept up to date at least quarterly and probably more frequently than this so that you don't struggle to gather all the information at the last minute. These returns are to provide you (and HMRC) with real time information of your income and expenses and the tax due each quarter. HMRC believes that this will help with tax planning and ensure that errors in recording income and expenses are picked up by them earlier than they can be now.
Whilst this deals with tax planning under self assessment there are no plans at the moment for corporation tax to be done in this way.
Submitting information online to HMRC has developed over the last few years since VAT returns moved from paper to online only, self-assessment tax returns from paper to online and PAYE returns submitted monthly instead of annually after the year end. A lot of people are adverse to change and sometimes you wonder why things have to be changed when they work perfectly alright as they are. But times are moving on and technology has enabled us to do things more quickly and efficiently than before. Using payroll software to do pay calculations and submit returns to HMRC at the press of a button instead of manually calculating pay and writing out returns has certainly reduced time needed and increased efficiency and accuracy.
Equally using accounts software which took over from writing up a manual ledger has improved record keeping and enabled us to look at and understand our accounts in a lot more detail. Keeping our accounts in cloud based software has given us even more flexibility enabling us to invoice from anywhere at any time, allocate receipts to invoices, add expenses and integrate other software to make everything happen smoothly and more quickly.
However not everyone is comfortable with using accounts software. It can seem daunting to get started and understanding what you need to do can be overwhelming so you just keep putting it off. If you are VAT registered and over the VAT registration threshold it makes sense to start thinking about what you are going to use for your accounts now so that when you have to submit your first return online it is straightforward.
If you need to start using software or need to change to a software which is better for your business then you need to do this at the start of a new financial year. It can be complicated to change mid year and you are not giving yourself an easy start if you choose to do this.
Submitting information within 30 days of your quarter end will be challenging for many businesses but if you start working towards that by April 2020 it will be no more than a press of a button as your invoicing and/or income will be automatically received into your accounts as will your expenses. It will be as simple as making sure you have received all the supporting paperwork and have included any expenses which have not been paid for through your business bank account.
We can help you get started on Xero, Quickbooks Online, Sage One or Sage 50 accounts software. We will take time to understand how you need the software to work for your business and can set it up for you. We will then give you some training to do the things you need to do with it and show you how to find the information you need. Our training session will be tailored just for you to enable you to ask all the questions you have and leave with confidence that you are using the software appropriately.
Contact us if you would like some help with your accounts software either with getting it set up and starting to use it or some advice on the bits you are finding difficult. We offer training sessions to suit your needs.
And if you just don't want to do it we can help with that too! We love doing bookkeeping so we can keep your records up to date for you and deal with the submissions to give you peace of mind.
Give us a call on 01722 341820.