Making Tax Digital: What You Need To Know
Gone are the days of keeping track of your incomings and outgoings by paper, and storing six years worth of receipts in a shoebox to hand to your accountant.
If you hadn’t guessed by now, there is nothing we love more than apps and software that streamlines our processes, and makes the day to day life of accountancy that ~ little ~ bit easier!
In the new world of cloud accountancy, challenger banks and revolutionary apps, the accountancy world has gone digital, and with this comes the introduction of Making Tax Digital.
You may have heard of the Government’s new legislation, Making Tax Digital, but you may not know what this means for your business.
That’s why we’re here with our guide to Making Tax Digital for VAT; a 101 if you will.
What is MTD?
Making Tax Digital (MTD) for VAT is a new legislation that requires all VAT registered businesses, whose taxable turnover is above the £85k threshold, to keep their records digitally and submit their VAT Returns with MTD compatible software - of course, our choice is Xero!
Essentially, the intention of Making Tax Digital is to make fundamental changes to the way the tax system works, making it easier to get your tax right and keep on top of your affairs, and to be more effective and efficient by moving from spreadsheets and paper receipts to compatible digital software.
MTD came into effect on the 1st of April 2019. For the majority of businesses, you must start keeping digital records of your VAT Returns from your first VAT period, beginning on or after this date.
How does it impact you and your business?
If you have exceeded the VAT threshold and are VAT registered, you will have to register for Making Tax Digital with your Government Gateway Login and VAT Number, so that HMRC can verify your information and migrate your record to their MTD system.
If you have an accountant who handles your VAT affairs, they should register you for MTD through their Agent Government Gateway Login.
Once your business has been registered for MTD, you (or your agent) can submit MTD VAT Returns directly from your Xero account - wahoo!
There are two key things to note here:
You must submit and pay your last normal VAT return before registering for MTD. For example, if your VAT quarter ended in March 2019, this VAT Return must be filed and paid by 7th of May 2019 in the normal way before you can register for MTD.
All VAT quarters that start on or after the 1st of April 2019 will be filed via MTD where applicable. This includes any quarters ending June 2019, July 2019 and August 2019 - depending on the quarterly set up you have.
So, what is ‘Compatible Software’?
You, or your accountant, need to be able to submit your VAT Returns to HMRC using software that draws information from your digital records and links directly to HMRC’s systems to send and receive data.
There is an abundance of software to choose from that is MTD Ready - you can check out which software allows you to submit your VAT Returns digitally on gov.uk.
Are you already keeping digital records of your VAT Returns? If you’re a client at Cone or you use Xero yourself for filing your VAT Returns, then you’re well on your way to being MTD compliant!
Why do we choose Xero?
Xero is the UK’s leading online accounting software, and it’s clear to see why. It’s our accountancy software of choice, and we recommend it to all of our clients.
With Xero, all of your data is securely stored in the cloud, and can be accessed from anywhere, on any device!
The easy-to-use VAT software makes it simple to create and submit your VAT Returns online to HMRC, with Xero leading the way for Making Tax Digital.
Xero is an HMRC-recognised VAT software provider, so you can easily publish VAT Returns, submit directly to HMRC and pay your VAT online, all within one straightforward tool.
So, what’s next?
There are three things to remember that you need to do for MTD:
Make sure that you are registered with HMRC for MTD - whether that’s independently, or through your accountant - if your turnover is over the £85,000 VAT threshold and/or you’re VAT registered.
Keep your business records digitally - goodbye spreadsheets and paper receipts!
Use compatible software to send your VAT Return to HMRC.
If you are already keeping your records digitally and using Xero to submit your VAT Returns, nothing will change day-to-day; it won’t change the information you need to send to HMRC, or when you need to send it.
While Making Tax Digital came into action for VAT Returns this April, we expect that MTD will also come into action for Income Tax and Corporation Tax in April 2020.
If you have any more questions about MTD, you can find super helpful resources here from Xero, and as a client, as always, reach out directly to your Client Manager for support!
About the author
Evie Cox is the Virtual Office Manager here at Cone. She loves wearing many hats in her role, with day to day jobs ranging from general office admin, developing graphic content for web and social media, and writing the odd blog here and there.
Evie loves yoga and meditation, being beside the sea, and shares her home office with her DaxiJack pup Rosie!