5 Great Tips on Making Tax Digital

MTD, which stands for Making Tax Digital, is an initiative from the UK government to “end the tax return”, by getting the smaller businesses to report regularly to the HMRC online, is continuing to gain a noteworthy momentum.

By April 2019, any small business that is above the VAT threshold in the MTD (Making Tax Digital) scope, will need to adhere to the latest Digital Tax legislation.

The time is drawing near, so as the owner of a small business, you need to be aware of the rules, international VAT rates, and legislation coming into effect.

In this post, we will tell you about some of the actions you need to be taking before the deadline.

 

#1 Determine Whether Your Business Is Above The VAT Threshold

The threshold minimum for VAT registration is at this stage £85,000 annual VATable sales. Yet, this figure could change prior to the MTD deadline, as there will be at least 1 Budget announcement that is due before this date.

If your annual VATable sales for your company is above this threshold by April 2019, and you are already registered for VAT, then you are required to:

• Maintain records in digital format for VAT purposes.
• Provide VAT return info through software that is MTD-compatible.
• HMRC also made a confirmation that if the annual turnover of a business dips below the VAT after the MTD deadline, the company will have to carry on reporting VAT figures digitally, provided the business remains VAT registered.

 

#2 Find Out Whether You Are Exempt From MTD For Other Reasons

A small percentage of people are referenced by the HMRC as “digitally excluded”, are exempt from the digital record-keeping requirements.

These exemptions include those that apply already to the electronic VAT returns. The reasons that are valid for these exemptions include:

• Membership of an order or religious society that have beliefs which are no compatible with using electronic communications.
• A business or individual that is subject to insolvency procedures.
• Age, disability, or a location that is remote or any of the other reasons that MTD commissioners have accepted as valid in order to not make use of electronic return systems.
• If your exemption is refused you are allowed to appeal the decision made by the HMRC. However, the details involving how to make this appeal have not yet been finalized.

 

#3 If You Are Exempt You Can Still Take Part Anyway

If the turnover of your business does not exceed the VAT threshold, or you are exempt due to other reasons, you are still allowed to participate in MTD for VAT. You need to make sure that you have voluntarily registered your business for VAT before you will be allowed to take part.

The HMRC has also stated that you can volunteer to participate in Making Tax Digital (MTD) for Income Tax, although at this stage unlike MTD for VAT there are no hard deadlines when it comes to compliance.

Making Tax Digital for Income Tax is predicted to only become compulsory by April 2020.

 

#4 Start Looking Around For Accounting Software That Is HMRC-Compatible

If you know nothing about digital-tax software, it is in your best interests to start finding out about the options available to you. The HMRC has explained criteria for software that is “functional compatible” for MTD for its abilities to:

• Maintain your records in a digital format matching up to the set regulations.
• Save your digital records in a form that is digital for a set time frame (currently set at up to 6 years).
• Create VAT returns from your stored records which you will then need to share with the HMRC.
• Offer HMRC with your VAT data on a basis that is voluntary.
• Be able to receive any relevant information directly from the HMRC.

If you are not sure about the capabilities or compatibility associated with software packages that you are thinking about using, it is best to ask the provider of the software for clarification.

 

#5 Ask Your Accountant

Many of the UK accountants work closely with the accounting-software providers in order to provide the best services that they can to their customers.

The profession of accounting has been in the process of preparing for MTD over the last few years.

This means that the accountant that you are already using, should also be able to give you more information on the best way to prepare.