Making Tax Digital – The What, Why and HowPurple LimePurple Lime//www.purplelime.uk.com/wp-content/uploads/2020/09/PL-logo.png
Over the last few years, HMRC has gone through a lot of changes. Most notably, they have embraced the digital world, bringing in new schemes designed to transform the way businesses manage and submit their tax information. It’s supposed to be more effective, efficient and easier for taxpayers to use. The first of these major changes starts in April 2019 (which is only 5 months away after all) and is centred all around VAT for businesses. So to get you ready, we wanted to explain what this new change is, and how you as a business owner can embrace it.
What Is The ‘Making Tax Digital’ Initiative?
Making Tax Digital for Business (often shortened to Making Tax Digital or MTD) is a new incentive-cum-regulation from HMRC that impacts how businesses above a certain turnover track and submit their VAT returns. From April 1st 2019, any business that is VAT registered and earning above the current VAT threshold will be required to keep digital records of their accounts and VAT. They will also have to submit VAT returns to HMRC every quarter through a compatible accounting software option. In practical terms, this means that businesses will no longer be allowed to keep manual records (instead of simply being advised not to), and will need to use HMRC’s API platform to submit, instead of manually entering every line of information. While the change has received some backlash in certain industries, it can actually make the financial side of your business a lot more streamlined. And the good news is that the 1st of April 2019 isn’t going to be a hard changeover date. Instead there will be a ‘soft changeover period of one year to help businesses adjust and make the changes they need to be compliant.
If you’re registered for VAT with a taxable turnover above the VAT threshold (which at time of writing is £85,000), then you will be required to submit your VAT returns digitally, once a quarter. Even if your turnover falls below the threshold in the future, you will still be required to submit digitally, unless of course you de-register altogether. The interesting thing is that if you have registered for VAT voluntarily, as many businesses do, but your turnover isn’t above the threshold, then you won’t be required to do this. At least, until your turnover does hit the threshold!
What On Earth Is ‘Compatible Software?’
The new regulation is fairly specific about what it considers ‘compatible software’, which means you need to be sure the digital accounting software you’re using matches their requirements. Luckily, HMRC have published a list of the accounting software that has been approved for use in the new MTD initiative, and is updating it all the time. At the moment there are 46 providers, but we suspect more will be added as the deadline draws closer. Just a few of the brands approved for MTD are:
Go Simple Software
PwC (spreadsheet & enterprise versions)
In other words, some of the biggest and most established accounting software’s out there, and many more besides. There are more names being added to this list all the time, as more accounting software providers go through the steps needed to become compatible with HMRC’s requirements. So if you see the name of your current software provider on that list, you’ll probably be OK. But if you are using a software tool to track and calculate your VAT, we still recommend you double check they are compliant by looking on this list.
At Purple Lime we spend a lot of time helping businesses track their Vat spend, compile accurate reports and submit them well before their deadlines. With our help, VAT planning has never been simpler. But we don’t just help you file the paperwork – we work with you to understand your VAT needs and work the payments into your plans across the year. We can help you decide on a tax rate, apply for a change if needed, and create an effective VAT management plan that means you will be paying the right amount for your business. If you would like to know more about VAT, just get in touch with the team at Purple Lime today.