The deadline for the introduction of the government's flagship Making Tax Digital (MTD) scheme is fast approaching and if you're not sure what it'll mean for your business, RWB is here to help.
What is MTD?
Making Tax Digital is a scheme being introduced by HMRC that will ultimately require taxpayers to move to a fully compliant digital tax system. The government states that this process will make it easier for both individuals and businesses to get their tax correct and keep on top of their affairs. Eventually, this will mean the end of the annual tax return as we know it.
When does MTD come into effect?
For VAT registered businesses, MTD comes into effect on 1 April 2019 where a taxpayer's accounting period begins on that date, or whatever date their prescribed tax period is after that date. It will start with the digitalisation of VAT returns by businesses with turnover above £85,000.
HMRC has recently announced a deferred date of 1 October 2019 for businesses with more complex requirements. Included in the deferred start date category are VAT divisions, VAT groups and businesses using the annual accounting scheme.
What does it mean for businesses?
If you run a VAT-registered business with a taxable turnover above the VAT registration threshold (currently £85,000) you will be required to keep digital VAT business records and send your returns using MTD-compliant software for VAT periods starting on or after 1 April 2019. This applies for all VAT entities, including charities, government bodies, LLP’s, sole traders, partnerships or limited companies.
Businesses with a taxable turnover below the VAT threshold can also sign up for MTD voluntarily if they wish to do so.
How to comply with making digital tax?
“Functional compatible software” must be used to calculate the VAT due, report the VAT figures to HMRC (as per the current VAT return) and receive information back from HMRC.
VAT related data for each sale and purchase made by the business must include the time of the supply, the value and the rate of VAT charged, or in the case of purchases, the amount of input VAT allowed.
A business can use more than one piece of software to keep its digital records, but any separate software programmes must be “digitally linked”. HMRC provides examples of what it means by digitally linked in the draft notice which you can review here .
Xero is compliant
If all this sounds daunting, it doesn't need to be. If you're already using cloud-based accounting system Xero, you automatically comply with the new MTD rules. Xero has worked closely with HMRC to deliver MTD and is registered on the government’s MTD software suppliers list.
Xero lets you work seamlessly with your bookkeeper or accountant to run your business in a real-time environment. What's more, all RWB’s clients working with Xero are provided with the Receipt Bank add-on free of charge (usually £10.00 per 50 invoices) to give you a fully functional, powerful online accounting package.
What do you need to do next for MTD?
Once you start using Xero - absolutely nothing. As Nottinghamshire’s largest independent Xero Platinum partner, our Xero-certified team can deliver the best cloud-based accounting software solution for your business. We're well placed to prepare you for MTD and offer you the support you need to get your business compliant. Contact us on 0115 964 8860 or email firstname.lastname@example.org to find out how we can help you.
The views provided in this article are for general information purposes only. Nothing in this article represents advice of any nature whatsoever. Accordingly, RWB CA Limited does not accept any liability or responsibility for the information contained in this article or any decision or other action that may be taken in reliance upon the information contained within it. RWB CA Limited accepts no responsibility for any errors of fact or opinion and assumes no obligation to provide you with any changes to its assumptions.