Choosing the right VAT scheme is an important step for small business owners and can have a considerable...
The introduction of Making Tax Digital (MTD) was first announced as part of the March 2015 Budget measures. It will ultimately see HMRC move towards a digital tax system.
MTD will fundamentally change the way businesses, the self-employed and landlords interact with HMRC. Businesses and individuals must register, file, pay and update their information using a new online tax account. Once the system is fully in place, paper records will no longer meet the necessary legal requirements.
The introduction of MTD was first slated to start in April 2018. However, it was delayed after the snap general election was called in June 2017. Then the MTD clauses were removed from the 2017 Finance Bill. MTD is now due to start in April 2019 with the introduction of the new MTD for VAT regime for businesses with a turnover that exceeds the £85,000 VAT registration limit.
How This Affects The Self-Employed
MTD for Income Tax (for the self-employed and those with income from property) and MTD for Corporation Tax are expected to follow the introduction of MTD for VAT, but not before April 2020 at the earliest. MTD may also be extended to all VAT registered businesses in due course.
For most businesses and individuals, the move to MTD will mean that tax records will have to be submitted digitally using specially approved software. There will also be a new points-based penalty regime put in place. There is likely to be a lot of teething problems as the system is rolled out.
Ultimately, the new system will drive more accurate information to be filed with HMRC. Many errors caused by incorrect information being fed to HMRC will be eliminated.
There will be exemptions in place from using MTD under the following limited circumstances:
- Religious beliefs incompatible with the use of electronic communications.
- Not reasonably practical due to age, disability, remoteness of location or other reason.
- Subject to an insolvency procedure.
HMRC will also help provide digital assistance if an exemption is not appropriate. Now is the time to start getting prepared, especially if you will be required to start using MTD for VAT from April 2019. We are moving all VAT registered clients to digital systems now if their year end overlaps April 2019.
How To get Started
As a starting point, you should speak to your current software provider to see how they are preparing for MTD and also explore what other options are available. We can help by offering you advice on the changes you will need to put in place to prepare for MTD, including what software would be most suitable for you.
In general, we recommend Xero as our bookkeeping platform of choice to 99% of our clients as it is simple to use and easy for us to train you how to do your own bookkeeping. However, for retail clients requiring stock management then we recommend Sage200.
Please get in touch about how we can implement those systems for your business.