Making Tax Digital: When will it apply to your business, and what will change for you when it does?
It's been three years since it was first announced, and next April the first phase of businesses will be starting to use the new Making Tax Digital scheme for their tax reporting to HMRC.
Do you know whether your business will be one of the first to use the scheme? If you're not sure, here's how to find out the answer:
The first phase of Making Tax Digital relates to VAT. So, to find out when you'll need to be ready, just answer the following questions:
1. Is your business VAT registered?
If your answer to this is "no", then Making Tax Digital (let's call it "MTD" from now on) won't apply to you until April 2020 (unless you hit the threshold and register for VAT in the meantime) so you have more time to prepare for the changes.
If you answered "yes", then it's possible you may need to set up ready for MTD.
2. Is your business VAT registered, with turnover less than £85,000 per year?
Many businesses register for VAT voluntarily, even though their turnover is below the threshold of £85,000. If this applies to you, then you can begin to use MTD from April 2019 if you wish, but it's not compulsory until you have actually reached the threshold.
3. Is your business VAT registered, with turnover above £85,000 per year?
Once you've got to this point with your business, then MTD applies to you from April 2019, and you'll need to know whether you need to make any changes to how you file your VAT returns.
What do I need to do, then?
I'm guessing that was your next question, if you answered yes to number 3. You're already filing VAT returns with HMRC, so in reality not a lot is going to change. The main change is going to be how you file those returns.
If you're already using accounting software, it's possible that you'll barely notice any change at all. Some providers already allow you to prepare your VAT return in the software, then the software will upload the data directly into your HMRC online account instead of you having to log in and fill in the returns yourself. This is essentially what MTD for VAT is all about: providing the information using a digital link, rather than manually typing it into a form. So, if this is you, well done - you're all set for next April!
You might be using accounting software to prepare the information for your return, but then logging into your HMRC online account and typing the figures into the boxes manually, or copying and pasting them in. Does this sound like you? Then all you need to do is find out how to get that link between your software and HMRC, set it up and you'll be good to go.
What if I use spreadsheets for my accounts?
HMRC will accept spreadsheets as a way of preparing your figures, so you're not being forced into subscribing to accounting software if you really don't want to. You won't be able to copy and paste the data into your VAT return, though - you will need to get some bridging software to link Excel into your HMRC account.
Is there anything else I need to know?
If your sales are recorded using till records, rather than sales invoices, the same rules relating to digital links will apply. So, if you don't have your sales directly linked into accounting software, you can record daily sales totals in a spreadsheet (and they must be daily - not weekly or monthly), but this spreadsheet will need to be digitally linked (using either an accounting package or bridging software) to your VAT return.
Hopefully by now you'll be feeling more informed about how you need to start preparing for Making Tax Digital. But if you have any questions about this, or your bookkeeping in general, please feel free to either leave a comment below or contact me through our website, or on Facebook, Twitter or LinkedIn.