It’s been three years in the making and there are just six months to go until it takes effect.
No, not Brexit (well, that too), but Making Tax Digital. HMRC’s pet project was launched with a roadmap back in 2015, with big ideas about:
- Better use of information
- Tax in real time
- A single financial account
- Interacting digitally with customers
We might not have considered ourselves ‘customers’ of HMRC a few years ago, but with online banking providing real-time visibility of cash in the bank, why shouldn’t we expect the same visibility of our tax accounts with HMRC?
HMRC has an ambition to be one of the most digitally advanced tax administrations in the world – improving efficiency, effectiveness and ease of compliance.
The skeptics in our team (that’s most of us, then), take the view that it’s also about making it easier in the long term for HMRC to collect taxes. They’ll be well placed to bring in cash sooner, potentially reducing the government’s borrowing requirements. All the good things we advise our business customers to do every day.
So, what is ‘Making Tax Digital’?
Making Tax Digital, or MTD as it’s often called, is about automatically creating and filing your tax returns directly from digital records. For millions of businesses across the UK it signals the end of paper accounting.
When will I need to submit digital tax returns?
From April 2019, businesses with a turnover above the VAT threshold of £85,000 will have to keep their records digitally and submit VAT returns to HMRC using MTD-compatible software.
From 2020, businesses may be asked to keep digital records and update HMRC quarterly for other taxes, however that’s a soft deadline at this stage.
There is also a programme to make tax digital for individuals. You may already have a personal tax account with HMRC.
What do I need to do?
HMRC’s guidance is still light on content, but in summary businesses will need to submit VAT returns using MTD-compatible software. HMRC have published a list of software providers who have successfully completed HMRC’s pilot programme.
Spreadsheets will no longer count unless you use a “digital bridge” to submit your return. Copying and pasting data won’t count.
Our Xero customers can relax knowing that they’re already using MTD-compatible software. Businesses who are not using approved software should consider making the move as soon as possible ahead of the deadline.
Why Xero?
More than 300,000 subscribers across the UK and more than one million around the world use and love Xero because you can:
- Automate calculations: Stop worrying about complicated formulas. Let Xero do the sums automatically so we can focus our time providing you with the right advice at the right time.
- View your key financials: Check your bank balances, invoices, bills and expense claims in real-time
- Bring your team together: Add as many users as you like and we can work on the same data at the same time
- Sync bank statements: Use direct banks to connect your bank account to Xero for quick and easy reconciliation
- Submit the right data: Be MTD-ready and easily submit your quarterly returns through MTD-compatible software
- Feel safe and secure: Rest easy, knowing that Xero provides multiple layers of data protection.
How can WCS help?
Communication direct with businesses has been thin on the ground from HMRC however the team at WCS are all set. With Brexit the primary government focus at the moment, it seems unlikely that this will change any time soon. Worryingly, the ICAEW have found that less than half of businesses understand what MTD means for them.
In the meantime our focus continues to be digitising new customer accounting records and ensuring customers are using this data effectively to inform their business decisions.
Our view is that going digital early allows businesses to reap the benefits of cloud accounting. For our customers, being MTD-ready feels almost incidental.
See HMRCs overview of Making Tax Digital
Talk to us if you’re thinking about making the move to Xero.
