Making Tax Digital
Updated: Jan 20, 2021
This is the third in a series of circulars (1st and 2nd are included below), looking to address commonly asked questions or topical issues. This edition provides an update on the UK Government’s ‘Making Tax Digital’ (MTD) initiative, and the impact this has on your current bookkeeping arrangement.
MTD has the potential to impact us all. Whether we operate as individuals, through self-employment, trusts, partnerships or limited companies. I will keep you abreast of the messages coming out from HMRC and HM Treasury, however it’s important you remain engaged in this topic as we approach each major milestone.
MAKING TAX DIGITAL AND BOOKKEEPING SOFTWARE
2nd October 2018
MTD is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs. HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world, modernising the tax system to make it more effective, more efficient and easier for customers to comply.
The aim is to digitise the accounting records of UK taxpayers so that as a nation we understand our affairs more, we look at our financial position more frequently and we liaise with the tax authorities more efficiently and more often, reducing the overall administrative burden.
All taxes and their associated processes are in discussion at the moment, including income tax and self-assessment, corporation tax, but most pressingly – VAT.
Subject to the Chancellor’s final approval in the October 29th budget statement, all VAT registered businesses with turnover in excess of the £85k VAT threshold, must record and submit their VAT returns digitally from April 2019 onwards. ‘Digital’, as I’m sure you’d agree, is a fairly ambiguous term and I won’t bore you with the definition being adopted. Therefore let’s look at the specifics.
What does this mean for you?
Clients either not VAT registered, or who are VAT registered but with an annual rolling turnover of less than £85k, are out of scope.
Clients who are VAT registered, use us as a bookkeeping intermediary, and whose annual rolling turnover is more than £85k are in scope. Clients we support on an ongoing basis can be split as follows:
a. Those using the ‘Company Accounts Template’, the in-house developed MS Excel / Visual Basic platform made available without charge, will be able to continue using this solution from April 2019. The template remains MTD compliant due to ‘bridging software’ acquired from BTC which interfaces VAT information held in the template into the HMRC frontend.
b. Those clients using independently sourced off-the-shelf software, who make their books available to us to review, prepare and submit their VAT returns will also be compliant. We have conducted a check on the few packages in use, and these providers are fully involved in the rollout of MTD and have plans in place to make sure their VAT returns are submitted appropriately.
Clients who choose to administer their own bookkeeping and VAT submissions will need to ensure themselves that the systems they employ are compliant with MTD.
Over the summer, formalised partnerships with commercial software providers have been explored in which this Practice would become what’s known as a ‘Certified Advisor’. This was done in order to be able to provide you with as wider a choice as possible as to how your financial information is stored, accessed, presented, shared and processed. Following much due diligence including workshops, webinars and other less-than-exciting activities, Xero and Quickbooks are those chosen partners.
Xero is a powerful tool with a smarter frontend and lots of functionality. It also benefits from compatibility with independent addons such as Receipt Bank and Go Cardless, which use ever more sophisticated technology to record and share information. It is suited for a range of business sizes and complexities, but is a little more technical. Xero is available from £24.50 per month plus VAT.
Quickbooks is also a very robust piece of software. Functionality is reduced, but thankfully so is the jargon. This may be suited better for those with more simple businesses. Quickbooks is available from £15 per month plus VAT.
Let me stress, in it’s current form, MTD does not make it essential for you to have to migrate from your current bookkeeping arrangement to either of these platforms. They are simply there as an alternative should you wish to take a look. If you would like to arrange a session to explore these packages in more detail, please let me know.
Likewise, if you have any questions or concerns on MTD, please get in touch.