It’s quite likely that you haven’t heard of Making Tax Digital or MTD as it’s affectionately known. It will start being rolled out from April and will eventually affect every business so I thought it would be worthwhile giving you an overview of what you need to consider.
There is a caveat here, in that that there's lots of details that are still to be ironed out, so anything I say is subject to change but, for now at least, this is what you need to know.
What actually is MTD?
The idea of making tax digital is that rather than doing an annual tax return, where you submit all your figures, almost up to a year after the end of the tax year, is to be replaced by digitally uploading financial information to HMRC throughout the year.
So, who will be affected?
Every business, including sole traders, will be affected eventually.
MTD will be rolled out from April 2019, the first to be affected will be those who come in above the VAT registration threshold.
From April 2020, all VAT registered businesses will be included.
Other businesses will be added from April 2021.
There will be options to voluntarily register if you wish to.
So, how does it work?
Basically, you'll have to use software to upload your financial information to HMRC quarterly. HMRC aren't providing the software to do this, so it's up to you, or your accountant, to take care of it.
There are loads of software providers on the market and some of them have successfully been updating already to HMRC, which proves it works.
There's a plugin for Excel being worked on at the moment as well which should bridge the gap between your spreadsheets and HMRC’s software.
What HMRC is aiming for is a seamless flow of information from each business, straight from your accounting or book-keeping system into another bit of software, if required, and then straight into HMRC's mothership.
Unfortunately, typing (or even copy and pasting) the numbers into the upload software isn’t allowed!
What do I do about it now?
How urgent this is for you really depends on your type of business and when it's all coming into force.
One of the main things to consider is the software you're using, if you are using any. You will need to check it is going to be compatible with HMRC, if it isn’t currently.
The other consideration really comes down to organisation. So many people leave their accounts and tax returns to the last month before the deadline and end up in a panic, trying to do everything all in one go.
But this approach won’t work when MTD comes into force. The days of submitting accounts annually will soon be gone.
The key is to start looking at how you deal with your finances now. Try and get in the habit of doing things monthly or quarterly so that when MTD comes in, you will be prepared.
This really is the way I recommend you work anyway.
Where are you up to with your preparations for Making Tax Digital? Drop a note in the comments if you have any questions or concerns and we’ll see if we can help.