Making Tax Digital

WHICH IS ALSO KNOWN AS

MTD IS A NEW UK GOVERNMENT INITIATIVE WHICH WILL PUT AN END TO THE TAX RETURN.

Making Tax Digital is designed by HMRC to make life easier for tax payers. All eligible companies will have to use an effective and efficient new digital system. From April 2019, most businesses with a taxable turnover above the threshold of £85,000 will have to comply with the new system. If you are eligible you will need to use approved accounting software to upload your tax data to HMRC each quarter.

Many businesses are already using this system to upload their VAT return but it will now become compulsory. Businesses will no longer be able to go the HMRC VAT site and add their figures for the quarter because it will have to be done via your own accounting software.

Quarterly Tax Return

With MTD, businesses will be obliged to upload their business income and expenditure four times a year or more. This will give you a clearer, up to date figure of how much tax you will be due to pay.

Will Making Tax Digital affect your business?

• If your business is over the £85,000 VAT threshold and you currently submit your tax return via the Government Gateway you will have to switch to MTD by 1 April 2019 and use cloud accounting software.
• If you are a VAT registered business and turnover is below £85,000 you won’t be immediately affected but eventually you will have to make the switch.
• MTD will eventually cover all tax including VAT, income tax and Corporation Tax by 2020
• VAT will be the first to be rolled out and this comes into effect in April 2019!

Get your accounting software ready for MTD now

If you are not using Accounting Software for your bookkeeping you need to start taking action now. We recommend Xero software – it’s easy to use and available wherever you are. To find out more about small business accounting, contact Roden Associates today. We specialise in bookkeeping and payroll for small businesses and we have offices in Edinburgh and Glasgow.

What to learn more about Making Tax Digital?

HMRC have provided an in depth guide to MTD on their website. Click the link below to find out more.

https://www.gov.uk/government/news/hmrc-publishes-more-information-on-making-tax-digital

STARTING A BUSINESS? DON’T FORGET THE BOOKKEEPING

Key things to consider when you are starting a business – bookkeeping

Starting a business is exciting and scary – taking that great idea and turning it into something workable sees you investing a huge amount of effort to deliver the end result.  Mixed in with the highs and lows are the practical and essential parts of running a business and sadly, at some point, you do have to turn your attention to what you may feel is the more mundane.  However, these are the ones that can make a difference to whether you keep trading or not – managing your business finances.

VAT registration

When anyone starts a business, putting the effort in to keep on top of their bookkeeping is essential – it helps with planning, forecasting and making sure they are operating profitably.

To begin with your turnover may not be that high; however, as soon as your taxable turnover has reached £85,000 over the past 12 months or if you expect it to reach that figure in the next 30-day period, then you need to register for VAT. There are some exemptions and we can discuss those with you if you have any uncertainties, but for most businesses, this is a fact.

There are benefits and downsides to VAT registration and it is possible to register before you reach the threshold, but once you reach the threshold, the choice disappears.  Registering before you reach £85,000 can, for example, be helpful from a trust perspective with your clients – they will view you as an established business; but of course, it comes with the requirement to undertake the VAT return process.

And of course, once you are VAT registered, you need to be aware of Making Tax Digital (MTD) but only if you have reached the £85,000 threshold.  If you have pre-registered for VAT before reaching that turnover figure, you don’t need to worry about MTD yet.

MTD for VAT

MTD has been around for a few years now as the government introduced the concept and then began the roll out.  As someone new to business, you may not be aware of what is entailed so here is a quick recap, MTD is applicable if your business is VAT registered and has sales that are subject to VAT that are above the VAT threshold of £85,000.  We covered it in more detail in our blog – Making tax digital.

As long as you are registered for VAT and reach the threshold, then you need to comply with the new requirement to provide VAT returns electronically and directly to HMRC.  To enable you to do this, you currently have two options:

1  Choose to use MTD-compatible accounting software which is able to store records of transactions affected by VAT, transfer the information directly to HMRC’s systems and files the VAT returns directly to them.

2  Use a spreadsheet such as Excel which needs to be API enabled or use bridging software to link and transfer the data to HMRC.  This must be automatic though and not manual.

The alternative is to work with a bookkeeper or an accountant who will operate as your agent and provide the data to HMRC on your behalf.

Running payroll

Taking on your first employee can also be a pretty momentous day – it normally happens when you have completed your third month of working 12+ hour days, every day, and you finally accept you cannot do it all.  But with an employee comes the added task of operating a payroll for them with the tax and NI deductions and tax codes and yet more work.  This is another task that can be outsourced to a reputable bookkeeper and they will simply expect you to provide some straightforward information to them on a weekly or monthly basis.  You are happy and so is your employee.

You don’t have to do it all yourself

When you start out in business, money does tend to be tight and you may make decisions on that basis, not fully considering that if you free yourself up to grow the business, that might really be a more cost effective way to move forward.  Talking to a reputable bookkeeper could make all the difference in those early days to free you up to do the fun things and enable you to focus on the reasons you decided to start your own business in the first place.

Do let us know if we can help you.