Making Tax Digital is a new scheme that has been set up by the British Government. As part of this scheme, every UK VAT-registered business will need to keep up to date digital records. This scheme will come into fruition to ensure that businesses get their VAT right.
- Who is affected by MTD?
- Should I register to MTD?
- What can I do to get prepared?
- How to submit a MTD for VAT return?
- What is the MTD timeline?
- How to switch from spreadsheets to an accounting software?
- Can I still use spreadsheets?
- What is a bridging software?
- Do I have to send my invoices digitally with MTD for VAT?
- Can I keep handwritten sales records?
Who is affected by MTD?
Any VAT-registered business in the UK that makes more than £85,000 a year will be affected. Businesses such as these already need to report their income and pay VAT. This means that the main change will be for their records. Records will have to be stored digitally and will need to be sent to HMRC. This can be done by using MTD-compliant software.
Should I register to MTD?
At the time of writing, only businesses who make more than £85,000 a year need to use MTD-compliant software. However, businesses that make less than this sum can voluntarily sign up for it. Please note, HMRC has put MTD on-hold for now while the UK government deals with Brexit. This means that you won’t need to switch to MTD as yet.
What can I do to get prepared?
To prepare yourself for MTD you might want to make the switch to using a cloud accounting system, such as Billomat. This will help you to ensure your business can get up to date with what is required of you before MTD becomes mandatory. It will also help to reduce the amount of time that is spent on admin when the time comes.
If you have used a paper-based accounting system, making the change to cloud accounting ASAP is essential. This is because you will be given much more time to get used to the system before you legally have to. This means you can deal with any features that seem tricky well ahead of time.
How to submit a MTD for VAT return?
Before you try to submit a MTD for VAT you need to ensure you have compatible software that will help you submit your VAT returns. You will also need to have bridging software that connects incompatible software such as spreadsheets to HMRC’s systems.
HMRC has a list of software that you can use to submit your VAT returns. Once you have the right software you will then need to make sure that your software is authorised. Once this is done you can send your VAT returns.
What is the MTD timeline?
HMRC’s Making Tax Digital timeline so far is:
- March 2018 – Pilot scheme launched
- April 2018 – Private pilot for VAT launched
- October 2018 – Public pilot launched for companies and sole traders
- December 2018 – Public pilot open to businesses and partnerships who are not up to date with VAT, those who use flat-rate VAT and newly-registered for VAT businesses.
- Early 2019 – Public pilot open to partnerships and their customers that trade in the EU.
- Spring 2019 – Open for those businesses that have been deferred.
- April 2019 – All VAT-registered business who make more than £85k a year to keep digital records using MTD-approved software.
- October 2019 – All businesses that were deferred are VAT-registered are required to send VAT returns using MTD-approved software.
How to switch from spreadsheets to an accounting software?
While many people are happy to use spreadsheets to help them stay up to date with their accounts, they will soon need to make a change. This change involves using accounting software that’s compatible with MTD. To do this, you will need to use an accounting package instead of a spreadsheet. This is so that you can have all of your financial information right where you need it: In front of you. To do this you will need to use accounting software that is compatible. The good news is the software will come with a lot of instructions to help you understand exactly what you need to do.
Can I still use spreadsheets?
Unfortunately, not. This is because spreadsheets do not provide an overview of profit and loss, reports, and anything else that HMRC needs to see. MTD will inadvertently help many businesses to improve their financial management and reporting procedures. In addition to this, your spreadsheets will not have the required link to HMRC. This link is needed so that HMRC can stay up to date every day with the running of your business.
What is a bridging software?
Bridging software is a tool that enables your current software to be linked to HMRC. You will no longer be able to use a spreadsheet to keep your accounts up to date and submit it to HMRC’s Government Gateway. Instead, you will need to use bridging software which will create a link for you. This link will ensure that your VAT return is totally compliant with MTD.
Please note, you might not need to use bridging software if you use MTD-approved software.
Do I have to send my invoices digitally with MTD for VAT?
Some MTD-approved software comes with tools that will help you to send your invoices to your clients. You will need to make sure that if you send an invoice (regardless of the software you use) that it’s recorded digitally. This is so that HMRC know how much money you’re invoicing your clients for.
Can I keep handwritten sales records?
Unfortunately, not. All of your sales records will need to be recorded digitally. You can keep a handwritten sales records and update them once a day. However, you need to make sure you update them every single time. It might, therefore, be beneficial to record them digitally every single time.