5 steps to get ready for digital tax reporting
Business Industry The dos and don’ts of Making Tax Digital according to the Federation of Small Businesses Policy & Advocacy Chairman Martin McTague.
Spring should be an optimistic time for small business owners. Shoppers are shaking off the January blues, the days are getting lighter and the start of a new financial year marks an ideal moment to reflect and plan ahead.
However, this year, come the end of March, small firms will not only have Brexit day to worry about, but also increased pressure on wages, higher auto-enrolment contributions and further business rates hikes.
Added to the mix is HMRC’s overhaul of its submission interface: Making Tax Digital. We’ve successfully fought for delays to, and exemptions from, MTD. But its initial launch will soon be upon us. Here are five ways to make ready for the imminent roll-out.
1) Check if you are affected
MTD applies from 1 April 2019 and, for now, affects businesses that are VAT-registered and have a taxable turnover above £85,000.
For certain businesses – such as trusts and some not-for-profit organisations - MTD has been deferred until October 2019.
Some entities are exempt altogether. These include those defined as digitally excluded or who cannot comply on the basis of age or disability.
If you feel you should be exempted but have not received confirmation from HMRC, contact them well before 1 April to obtain a ruling.
2) Assess how compliant you are already
While a large proportion of small business owners use digital means to record business transactions, many also record some manually as well. From April, they will all need to be recorded digitally.
Lots of businesses will already be using MTD-compliant software. Speak to your existing provider about whether your accounting software is enabled for MTD. If it is not, you will need to upgrade it or get a new system.
HMRC has listed scores of products to choose from on its website.
3) Find the right software for you
Every business is different, so you will need to consider which system suits you best.
Be sure to consider cost, compatibility with your existing systems and ease of use.
You could opt for a single software product – which can both keep your digital records and send your VAT returns – or different products that link together digitally. Some can be accessed remotely from smart phones and tablets, while others are installed directly.
If you stick with using spreadsheets, you will need to arrange MTD-compliant bridging software to export information directly into HMRC's new systems.
Aim to start using any new software before 1 April 2019 to get a feel for the new way of doing things.
4) Speak to those in the know
If you haven't done so already, speak to your accountant about Making Tax Digital and consult our dedicated Making Tax Digital hub. FSB has its own dedicated Legal Advice Line and HMRC has its own VAT consultants.
It’s also useful to speak to business owners in a similar position to yourself to get a sense of different approaches to the roll-out.
5) Seek to embrace change
MTD presents challenges: not only is there the need to invest in and learn about new software, there’s also the requirement to keep full digital records.
However, MTD holds a lot of potential if executed effectively by HMRC. Coupled with Open Banking, it could facilitate massive efficiencies within your business.
Taken together, these two initiatives may create an environment where banking, tax and invoice data can seamlessly interact with one another and be brought together in one place. That would mean an unprecedented level of one-click oversight.
Spring means rebirth and new cycles. Naturally that can mean big challenges and big upheaval. But it can also mean opportunities and, ultimately, brighter futures.