Well if you’re reading this post then you are doing better than thousands of other business owners out there. Statistics from professional institutes indicate that 45% of businesses still don’t know what Making Tax Digital is or how it applies to them. That’s worrying!
So, what is Making Tax Digital for VAT?
Simply put, it is legislation which HMRC is introducing to require businesses to keep digital accounting records, rather than paper based or other manual methods. In addition, HMRC are changing the way in which we are allowed to submit our VAT returns. Certain businesses will no longer be able to login to
the Government Gateway and type in the figures to submit their VAT return. They also won’t be able to use outdated software which doesn’t comply with HMRC’s new requirements.
Does it apply to my business?
In short, if your business is VAT registered and your turnover is £85,000 or more, then YES.
If you are nearing this turnover level, you can register for the system anyway so that you don’t have to worry about it creeping up on you. In fact, any VAT registered business can voluntarily register for Making Tax Digital.
I encourage everyone to switch to cloud accounting, regardless of whether Making Tax Digital currently applies to your business, as there are so many benefits as I explain below.
I already use Sage 50/QuickBooks to maintain my accounting records, is that still ok?
In a lot of cases the answer is NO! This may come as a shock to many, but unless you are using the cloud accounting version of this software (which is accessed online rather than stored on your desktop) it is unlikely that this supports the new Making Tax Digital for VAT requirements.
If you are using Sage 50 version 23 or below, you need to use different software. Version 24 was released in September 2017, so if you bought Sage prior to this, you need to consider your options. To check your version number, just click on Help and About.
One of the problems with desktop accounting systems, is that unless you pay for the privilege, you aren’t automatically provided with the latest version. Therefore, you can soon be left with outdated, inefficient software. With cloud based systems however, you are provided with the latest version automatically in most cases. If you are choose an innovative company such as Xero, you will continuously benefit from new functionality. This is why we are a Xero Certified Practice, to give our clients the very best.
What if I use spreadsheets?
Spreadsheets alone don’t comply with the new requirements under Making Tax Digital. There may be very good reasons why you use them, for example if you operate a margin scheme. In which case there is bridging software available which will plug the gap between your spreadsheets and Making Tax Digital. However, in the vast majority of cases where specialist VAT schemes aren’t being used, you will hugely benefit from switching to cloud accounting.
How do I move to a cloud based accounting system like Xero?
This really is much easier than you perhaps imagine. If you currently use a desktop system we can help you to import your existing data into Xero, to get you up and running quickly. If you currently use Sage or QuickBooks, this is a particularly swift process.
If you currently keep manual records, then the level of setup required is more involved. However, you have so much more to benefit from switching to a cloud based system. You will save so much time and have insights into the performance of your business throughout the year, rather waiting until the submission deadline. This means that you can take action to benefit your business, making informed decisions and saving tax in many cases.
When does Making Tax Digital for VAT start?
Affected businesses need to comply from the date of the start of their first VAT period after 1st April 2019. For example, if you submit VAT returns on a calendar quarter basis i.e. for quarters ended 31st March, 30th June, 30th September and 31st December. You need to comply from 1st April 2019.
As well as maintaining your accounting records digitally, you need to register with HMRC to submit your VAT returns under Making Tax Digital. You will need your Government Gateway login details to do this, if you are doing it yourself. However, I recommend that you discuss it with your adviser and they will be able to help you. Of course, we are happy to have a chat with you and ensure that you are ready. Please get in touch.
I can’t recommend Xero and cloud accounting highly enough. I encourage you to move to Xero, regardless of whether Making Tax Digital currently applies to your business.
You’ll benefit from:
- Access anytime, anywhere
- Secure and automatic backup of your data
- Unlimited users
- Digital sales invoices, which can be emailed to your clients
- Easy to add payment services to accept payment by credit card or Direct Debit
- Huge efficiencies in your bookkeeping processes
- The ability to cost effectively outsource your bookkeeping, while crucially retaining access to your data
- Plus much more!