What is Making Tax Digital?
Making Tax Digital (MTD) is a key part of the government’s plans to make it easier for businesses to keep on top of their tax affairs. The aim is to make the process of administrating tax simpler and more efficient. All of your tax information will be in one place, and you will be able to pay tax based on your business activity throughout the year. You will also be able to upload and update your tax account in real time.
Keeping digital records and providing updates to HM Revenue & Customs (HMRC) directly will help reduce errors, cost, uncertainty and worry. This is a major change affecting taxpayers in business, including those who have rental income, and will be compulsory.
Will it affect you?
If you own a business or are self-employed and pay tax, then it is likely you will be affected and required to keep digital records. HMRC are starting the MTD process with businesses above the VAT threshold next April, and it is expected that all other businesses will be required to comply with MTD by 2021.
From 1 April 2019 all VAT registered businesses with turnover above the VAT threshold (currently £85,000) will be required to:
- Maintain digital records (for VAT purposes only)
- Provide their VAT information to HMRC using third party commercial software.
The biggest challenge in the move to a digital system will be the availability of suitable software. The regulations will require any business within the scope for MTD to use ‘functional compatible software’ to meet the new requirements. HMRC have stated they will not provide free software. However, they are working closely with software providers to ensure a wide range of options will be available. Your main priority should be implementing a cloud accounting system if you don’t currently have one in place.
Moving to the cloud
Cloud accounting allows you to keep track of your finances with a system that’s accessed through the internet and stored on a secure server. This means you can access your business data in real time wherever you are, on a mobile device or desktop computer, and your data is secure and automatically backed up for you. It gives you the freedom to keep your finances organised, monitor your cash flow and keep track of profitability in a safe and secure environment.
And with Making Tax Digital nearly on our doorstep, cloud accounting will ensure you comply with the new government digital tax requirements.
How will cloud accounting benefit your business?
As well as making you MTD compliant, it will provide you with a real time overview of your current financial position. If you can see how your business is performing, you are better able to make informed decisions which can improve the profitability of the business.
You can also collaborate easily with your colleagues (and your accountants) with multi-user access and be confident you’re all accessing the same up-to-date and accurate information.
Sector specific add-ons, such as Vinsight and Farmflow, allow you to link other digital platforms directly with your accounts.
You’ll also improve your cash flow, as you’ll have your annual accounts produced much quicker. By doing this you can then find out what tax you have to pay well in advance of when it’s due, helping you to better plan your cash flow.
The cloud solutions available to small and medium-sized businesses are helping owners to focus on what they do best. These tools are bringing innovation, increased efficiency and improved profitability to even the smallest business.