Making tax digital in the UK – what you need to know
In less than 6 months’ time, starting April 2019, the first mandatory phase of Making Tax Digital will go live. This change will impact nearly all VAT registered UK businesses.
Are you ready?
The purpose of MTD is to digitise tax in the UK and create a more transparent and seamless taxation system. Essentially take advantage of modern processes and technological breakthroughs.
HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world. To achieve this they will roll out new technologies and improvements, starting with changes to VAT filing. These digital changes will bring simplicity, effectiveness and efficiency by eliminating disjointed legacy tools and by creating a digital ecosystem that aligns itself with modern accounting software.
Those businesses who are VAT registered and operating above the VAT threshold will be required to keep their records digitally and submit VAT returns to HMRC using MTD-compatible software such as Reckon One.
Will MTD affect me as a business?
From April 2019 if your business has a taxable turnover above the VAT threshold (currently £85 000) you will need to ensure you have some type of MTD-ready software solution in place.
Over the next few months you need to guarantee your current system will be MTD compliant come the deadline. Speak to your accountant (or find one here) to discuss what you need to do to prepare. Or speak to Reckon, knowing we are working with HMRC to ensure we deliver a cost effective and efficient MTD ready accounting solution.
Furthermore you need to make sure all of your paperwork… is no longer paper. Take advantage of cloud accounting software and ditch the spreadsheets and manual paperwork. Not only will you find many hidden advantages in the modern crop of accounting technology, but any concerns about MTD compliance will be null and void as current accounting solutions are of course inherently digital.
How does MTD affect me as an agent?
If you are an agent, your aim should be rather clear. Education, education, education. Assuming you are well informed of the upcoming requirements (and you really should be) you will need to assist your various clients in getting their businesses ready to be compliant from early next year.
Take advantage of all available government resources and information packs and try to speak to your Reckon account manager regularly for hints and tips. You should also be sharing articles such as this, as well as distributing emails, newsletters and presentations aimed at educating and enabling your business customers to become MTD compliant. Make sure to mention this every time you communicate with your clients and utilise every marketing channel available to keep your clients well informed. Start conversations and communications now to give you as much time as possible to help your clients.
Start planning now if you are a business
As a business, you need to begin this process of assessment now. Many of you will have to do nothing at all. Many more will need to ditch paper entirely and move on to an MTD compliant solution. in the coming months, you will need to know whether your software will be updated in time and whether you will have to act on this, or simply wait for your supplier to switch these MTD updates on automatically.
Some providers may elect to charge for MTD software upgrades and some may choose not to update to older software versions at all. So make your inquiries now rather than have any nasty surprises later.
Start planning yesterday if you are an agent
As an agent however, the mission is a touch more onerous. Firstly, you will need to set up your ‘agent services’ account via HMRC. Note, this is something new, so don’t assume your old HMRC agent account is enough.
You should then review your VAT registered clients and categorise them. You will need to consider how they currently manage their accounts and VAT filing, how much effort will be needed to help them switch, and when they need to be switched. Remember that the first mandatory MTD VAT submission will be early July 2019 at the earliest.
This categorisation will help you predict the impact MTD VAT will have on your client base. In this way you can simultaneously create a mailing list of specifically affected clients as well as anticipating their needs and be prepared to direct them.
And remember, education, education, education! You should consistently focus on improving your own MTD awareness so that you are able to confidently pass your MTD knowledge on to your clients. This is a key consideration for your role as a bookkeeper or accountant as you will need to be able to answer the ‘when, who and how’ of this situation whilst making clear and direct recommendations on courses of action. Extending this further, you may also need to plan staff education as you see necessary.
For further information see HMRC’s official stakeholder communication pack here.
Make sure you check out Reckon One, our fully MTD compatible cloud accounting solution here.