Making Tax Digital A Guide by Berg & Williams

What is it?

Making Tax Digital (MTD) is an initiative designed to modernise the UK tax system. Under MTD, businesses will need to maintain digital accounting records in HMRC approved software that support Income Tax, VAT and Corporation Tax calculations and returns.

Making Tax Digital requirements start on April 2019 for VAT, with Income Tax and Corporation Tax due to follow in the years ahead. If your annual turnover exceeds £85,000, you need to prepare.

How will it affect my business?

Many modern businesses have embraced, either partially or in full, the concept of 'digital accounting' and at least some of their financial information will be in a digital format.

However, under MTD a much more cohesive approach is required. You will need to ensure that all of the required records are digital, that these records are kept in approved software, and that each software you use that generates financial records are linked digitally.

What are the requirements?

From April 2019, you must keep certain financial records that support your VAT returns and calculations in a digital format, within software which meets HMRC criteria. Importantly, this software must be capable of exchanging information with HMRC digitally.

What is a digital record?

Contrary to popular belief, a digital record is not simply a scan or copy of a financial document such as an invoice. For MTD purposes, a digital record comprises electronic data including key information about a financial transaction. For example, for a 'sale' transaction under the MTD your data must include the time and date of the sale, the value and the rate of VAT charged.

What happens if we don't comply?

Despite delays, setbacks and confusion MTD is coming.

Ignoring MTD is not a viable strategy. The penalty regime is under review, but it is clear HMRC intend to use penalties to punish those who don't comply. Whilst a transition period and early leniency can be expected, ensuring early compliance will avoid the risks of financial penalties and unnecessary stress as MTD rolls out and expands.

What if my financial data is kept across multiple software packages?

Many businesses maintain financial data in multiple pieces of software. For example, a business may invoice from sales software, track employee expenses in a dedicated app and use cloud accounting software for everything else. Under MTD, there must be a 'digital link' between all of this software. 'Cutting and pasting' information from one software to another is specifically prohibited.

Are spreadsheets sufficient?

Many businesses continue to rely on spreadsheets to generate and manipulate financial records. The use of a spreadsheet is not prohibited by MTD, but many users will struggle with the need to maintain digital links by relying on spreadsheets alone. At best, over reliance on spreadsheets will increase costs and administration as accountants and bookkeepers step into the breach to ensure a complaint digital link exists.

If your business relies on spreadsheets, this is a good time to review your processes, plan for the future and secure the benefits of automation and cloud accounting.

What should I do?

You should review your financial processes and software to ensure that you are creating digital financial records in an acceptable format, that your financial software is linked in a way that meets HMRC's requirements, and that your software is (or will be) compliant with HMRC's requirements.

Forward thinking, dynamic businesses will see this as an opportunity to review their digital processes and secure efficiencies and improvements, ultimately lowering their accountancy costs and improving the customer and supplier experience.

As digital consultants and software experts, Berg & Williams can help you plan for, and remain compliant with, the Making Tax Digital rules.

Book your free consultation today - call us on 0161 464 7162 or email hello@bergandwilliams.com

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