Making Tax Digital???
Making Tax Digital or MTD, It sounds high tech but what does it really mean and do you need to do anything now to be ready?
Put simply for the first stage, it requires companies to keep their records in digital form and submit their VAT returns using software. In other words, the software will need to hold the accounting records in digitised form as required by the VAT rules, create the VAT return and submit the data via an API (Automatic Platform Interface) to HMRC.
For those who are already using one of the major cloud accounting softwares such as Xero or Quickbooks this is already happening and you are likely to be compliant but if your records are in excel (or you transfer them to excel to consolidate them) and then manually put them in a VAT return then work will be required.
An example of a a record in digitised form would be say an invoice where the key data required for VAT is stored in the software i.e the date of transaction (tax point), Amount of supply, and amount of input tax claimed. The invoice itself need not be held in digital form although if your software allows the invoice to be scanned and stored you don’t need to hold the original so personally I would recommend it. In theory Excel can store and maintain this data and as long as there are digital links between data then you will comply. Note however copy and paste does not constitute a digital link and Excel is unlikely to comply on the requirement to submit the data via API to HMRC.
So when do you have to be compliant?
From April 2019 ( meaning your first VAT period after 1stApril 2019 ),if you turnover is above the VAT threshold (currently £85K per year) then you need to comply with the MTD rules .
For those still on spreadsheets or legacy accounting systems, then this is the time to upgrade to the digital age, ideally on to the cloud. For small firms, cloud based software works really well and not only would you become automatically compliant ( once properly set up) but you would create significant efficiencies and improvements in your accounting process reducing the risk of errors ( which is one of the main reasons why HMRC are forcing compliance). Even if turnover is currently below the VAT threshold (and you are therefore not obliged to comply) the benefits of automation is significant.
For the full details of the HMRC requirements you can visit the HMRC website - https://www.gov.uk/government/publications/vat-notice-70022-making-tax-digital-for-vat/vat-notice-70022-making-tax-digital-for-vat#contents
If need further advice on specific impact to you please get in touch. For software providers, GQ Consulting, partners with both Xero and Quickbooks and can recommend them as optimum accounting solutions for small businesses and start ups. We would be happy to discuss their relative benefits for your companies’ needs or other solutions to support your business .