With so many of our everyday business operations taking place online, it’s surprising that tax returns can still be filed on paper.
But that’s about to change with HMRC’s new programme of digitisation. It will require all businesses and organisations to maintain digital accounting records using cloud-based software that’s compatible with HMRC’s systems.
The Making Tax Digital (MTD) programme will ultimately apply to all types of tax administration. It will begin with the imminent MTD for VAT regulations in 2019 and continue with MTD for Income Tax, MTD for Corporation Tax and MTD for Individuals.
By moving UK businesses towards a digitised tax system, HMRC hope to improve and simplify the process of completing tax returns.
Under the new regulations, all VAT registered businesses and organisations above the £85,000 VAT threshold must comply with digitisation by 1st April 2019. This applies to sole traders, partnerships and limited companies.
The only exceptions to this deadline are charitable trusts. It also includes not-for-profit organisations that are not set up as a company, VAT divisions and groups, and public corporations. For these, there is a six-month deferral until October 2019.
While these changes may seem initially daunting, they should ultimately make it much easier for VAT registered businesses to maintain their records and complete returns.
Here at Fresh Clarity, we adopted cloud technology very early on in our business, so the majority of our clients are ready for MTD without having to make any further changes. However, for anyone who still needs to move to digital accounting, we’ve outlined the 5 key steps to becoming compliant.
1. MAKE A START RIGHT NOW
If you currently log into HMRC’s portal to submit your VAT returns, you’ll need to move to digital as soon as possible.
This will give you enough time to transition your systems over before HMRC’s deadline. Paper records will no longer meet the legal requirements in tax legislation.
If you’re currently using Microsoft Excel, you can continue to do so, but you’ll still have to invest in bridging software. This is to ensure it’s compatible with HMRC’s systems, and it’s a good opportunity to review whether Excel is really working for you.
Businesses who haven’t complied by the deadline will not be able to submit their VAT return. This is because there’ll no longer be the option to submit it directly via HMRC’s portal – which could result in late filing penalties.
2. MAP OUT YOUR CURRENT FINANCIAL PROCESSES
If you’re not sure where to start, the first step is to map out your current processes. For example, how do you invoice your customers? How do you take payments from customers? Do you run your own payroll? And do you use any other software, like e-commerce programs or stock recording software?
Don’t ‘panic buy’ and grab the first piece of software that ticks the MTD box. You may later find it doesn’t work for your business. Once you’ve mapped this out, you’ll have a clearer idea of the software that will best support your operations.
3. CHOOSE THE RIGHT SOFTWARE FOR YOUR BUSINESS
There are numerous cloud-based accounting software packages to choose from. The two we use with our clients are Quickbooks Online and Xero.
Not only are they specifically created for small businesses, but they’re designed to integrate with other useful software packages that could really streamline your operations – such as ReceiptBank, Satago and GoCardless.
Marie and Kim are registered Advanced Quickbooks Pro Advisors and experts in these packages. However, we won’t recommend any software for a business unless it’s right for your business.
Book a free discovery call with us if you’d like some expert advice on choosing a package that suits your needs.
4. MAKE SURE YOUR DATA IS ACCURATE
Getting up and running with cloud-based systems is much easier than it used to be. If you’re starting fresh with new software and not using historic data, you could be set up in a few hours.
Do arrange for a tech-savvy bookkeeper or accountant to check your data before you convert it to your new systems. There’s no point uploading data that isn’t accurate.
5. BOOK A TRAINING SESSION ON YOUR NEW SOFTWARE
When you implement a new piece of software in your business, it’s important to get the right training. This is especially true if it’s going to be used by other members of your team too.
You want to be able to understand exactly how the software works and feel confident using it. Here at Fresh Clarity, set up the software for you and provide training to get you quickly up and running.
For more information or to chat about the best MTD-compliant software for your business, get in touch today!