If you need to complete accounts and/or submit tax returns to HMRC, you need to know about Making Tax Digital, which starts next year. It’s the biggest change to tax since the introduction of self assessment in 1996.
This initiative will require businesses and landlords to use commercial software to maintain their business records and update HMRC quarterly.
The team at Spicer & Co Chartered Accountants in Dunstable have summarised the key points of Making Tax Digital:
· Your tax affairs are updated every three months, so no cramming it all in at the end of the year
· Cloud software records all money in and out of your business bank account
· You have an idea of your tax bill every quarter
· Tax planning is easier
· Compulsory use of technology
· More reporting deadlines
“Making Tax Digital is good news for businesses overall,” explains Suzanne Spicer of the Chartered Accountancy practice. “It’s a huge change and many people will need to change their systems to meet the reporting requirements. However online accounting systems such as Xero offer big benefits to businesses and the self-employed. As well as easier record keeping and financial planning, digital accounting saves precious time on a day-to-day basis.”
Making Tax Digital is just a few months away!
A phased introduction will start in April 2019. This first phase will involve businesses registered for VAT with a taxable turnover above the VAT registration threshold of £85,000. These businesses will need to keep VAT records digitally and file their VAT returns using compatible software, (this includes Xero and others).
From April 2020 (at the earliest), all other taxes – such as income tax and corporation tax – will be included. This will affect businesses and individuals with an annual turnover of more than £10,000.
How Will Making Tax Digital Work?
Firstly, businesses will be issued with a digital tax account.
Some information will automatically flow into the digital tax account (such as bank interest). Data will need to be checked and then any gaps in income and expenses completed before filing with HMRC.
What Happens Now?
Spicer & Co Chartered Accountants recommend three steps to prepare for Making Tax Digital:
1. Check when you must start filing quarterly returns (April 2019 or April 2020)
2. Investigate online accounting software options (if you don’t already use one)
3. Keep up-to-date by signing up to our newsletter and keeping an eye on our blog. We will guide you through the changes with regular updates, including jargon-free explanations of the details issued by HMRC. Plus – you are welcome to contact us if you have any queries.
“The transition to the Making Tax Digital requirements will be much easier if your records are on a cloud platform accessible to both yourself and your accountant,” explains Suzanne. “Now is the time to make the changes – especially if you are VAT-registered and have a turnover of more than £85,000.”
She adds: “Above all, remember that we’re here to help with understanding how Making Tax Digital will affect your business and answer any queries about cloud-based accounting.”
Would you like to know more about how Making Tax Digital affects you?