31st January 2019
You’ve likely missed the saga of Making Tax Digital (MTD), which has been chugging along since 2015.
Announced in the March Budget of 2015, then chancellor George Osborne unveiled a grand plan to modernise the tax system. It signalled the death of the annual tax return, with Osborne outlining a vision of quarterly reporting all done through MTD-enabled software.
What ensued was a stop-start story filled with bureaucratic intrigue, delays and debate. This probably passed you by because, well, getting MTD over the line was proving difficult and in the ensuing struggle, informing businesses fell to the wayside.
One survey of businesses conducted in 2017 by HMRC and one of Propel’s accounting software partners, FreeAgent, found 84% of respondents thought there was a lack of information about the initiative.
But here we are now: MTD has emerged from the labyrinth of consultations and planning, it’s finally set to become practical reality. Of immediate concern is VAT (Other areas of MTD such as Income tax and Corporation tax have been put on hold until April 2020 at the earliest).
MTD for VAT: When it is and how it works
From April 1 2019, Making Tax Digital means that businesses above the VAT registration threshold will have to keep all relevant records for VAT purposes online. They'll also need to provide their VAT return to HMRC through compatible accounting software.
The dividing line between MTD being mandatory or not is the UK’s generously high VAT threshold, which sits at £85,000. This amount is ‘taxable turnover’, which is the total value of everything you sell that is not exempt from VAT.
As a startup even reaching the VAT threshold might seem like miles away, and as a result, MTD is a peripheral concern. But, actually, it’s worth considering your approach to MTD now.
It’s possible to register for MTD on a voluntary basis. The big caveat here is once a business joins MTD, even because of a temporary increase in turnover, it is a permanent commitment. There’s no ‘exception’ to joining MTD once you have gone over the £85,000 threshold.
But presumably, you are in this for the long run -- and the ultimate aim is to go beyond the VAT threshold. So the commitment to MTD is less daunting for a startup planning for long term growth.
Jumping the gun could yield significant benefits, too. Getting set up with the right approach now could save a significant amount of hassle and cost down the line, meaning that when the time is right growing your business can dovetail neatly into MTD instead of suddenly lapsing into it.
MTD has its benefits. First of all is simply visibility. Your tax affairs will be visible in real time and you won’t need to wait until the end of the year to know how much tax you’ll need to pay on filing your return.
Managing your books digitally puts your business in an excellent position for the future. Modern tax software is more than just number crunching; it unlocks a whole new realm of technology options.
Certain suppliers offer an add-on ecosystem of apps that effortlessly slot into your software package. That includes like automated receipt capture tools such as Receipt Bank or forecasting software like the Propel Bespoke Dashboard.
This talk of software packages might make you wonder: ‘What about spreadsheets?’ Indeed, MTD is heavily predicated on the use of tax software. But if you use spreadsheets to manage your finances, you’ll be looked after.
So-called bridging software will connect your spreadsheet with HMRC's systems, allowing the relevant information to transfer through to HMRC from a spreadsheet format. There are already numerous bridging solutions in the market.
Full steam ahead for MTD
MTD’s progress has not been straightforward. Then again, any ambitious programme of change will come with its hiccups. But now it has landed and it’s full steam ahead, starting with 1 April 1 for VAT.
For all the nay-saying and negativity, though, MTD is an opportunity for your business. With the right advice, the right tech and bit of a head start, you can chart a new path ahead, utilising digital tools that make managing your finances simpler.
So here are a few key things to remember:
• MTD for VAT kicks-in on 1 April 1, 2019 for all businesses over the UK’s VAT threshold.
• Under MTD for VAT businesses will report to HMRC quarterly
• MTD requires MTD compliant software
• Spreadsheets are permitted but must be MTD-enabled or connect to HMRC using special software.
• You can register voluntarily for MTD -- but once you have, it’s a life-long commitment
Do you need help or advice managing your books digitally? Get in touch with the experts at Deloitte Propel to get the support you need.