Is your business ready for HMRC’s revamp to the tax system? If you’re yet to start the process and need support to get ready for Making Tax Digital, this article will help you take the steps to get things moving.
When Making Tax Digital begins in April, starting with the VAT programme, it will be the first step taken by HMRC to reduce the £9bn of tax revenue that is lost each year due to incorrect submissions.
Who is affected by Making Tax Digital for VAT?
In the UK, 1.1 million businesses will be affected by Making Tax Digital for VAT, yet according to research carried out by Sage, one in three companies aren’t ready for it.
If your business is VAT registered with a taxable turnover that exceeds the current VAT threshold of £85,000, then from April, you will need to use functional compatible software to submit your tax returns.
Making Tax Digital advice from a business owner
With 12% of businesses still filing their returns manually, it’s clear things need to change so everyone is up to speed with the move to digitise tax.
Making Tax Digital (MTD) offers a good opportunity to make that a reality and by moving to digital accounting, businesses could save £17,000 per year.
Here, Janice answers questions on how MTD will make things easier for her and she offers advice for your business as you strive to get ready for Making Tax Digital.
Making Tax Digital
HMRC’s Making Tax Digital has changed how businesses submit VAT returns – we’ll help you with it via a free telephone consultation.
What benefits is your business anticipating with Making Tax Digital?
Janice B Gordon: “I have always been VAT registered and used HMRC compliant accounting software, so the move to compulsory electronic uploads from an accounting software system is business as usual for my business.
“However, I run a business where I engage with my accounting software to invoice and submit quarterly VAT submissions.
“I have been thinking of implementing an optical character receipt recognition app and doing more management reporting to make my accounts easier to manage and more proactive in growing my business.”
What would you say to businesses that haven’t started preparing for Making Tax Digital yet?
Janice B Gordon: “If your business is not registered for VAT submission, you will have to conform very soon. Why not use this as an opportunity to get your business account house in order?
“Too often I see businesses struggling at the end of the year to reconcile a whole year of income and expenses; quarterly accounting is a better investment of your time.
“Making Tax Digital is an initial investment in the set-up. OK, you may need to update software and review existing processes. Perhaps you might need additional professional support to move to MTD.
“But at some point, you must upgrade. However, you and your business can benefit from regular insights on how your business is progressing.”
What would you say business owners need to do now?
Janice B Gordon: “There are four key things to be on top of:
- Know your submission dates.
- Review your software – is it HMRC ready?
- Review your processes – are you ready for quarterly reporting?
- Ensure you meet submission deadlines to avoid any automatic HMRC penalties.”
Need help with Making Tax Digital?
Don’t despair – this infographic covers the basics and has some essential advice to help you along the way…
10 tips to get your business ready for Making Tax Digital
To help you further as you take the steps to get your business ready for Making Tax Digital, we spoke to more of our Sage Business Experts and our Global Business Experts – business owners like yourself who are working hard to build their companies.
Here, we’ve combined their tips with some essential advice to put your business on the right track with Making Tax Digital.
1. Work out whether you’re impacted by MTD for VAT
What’s your taxable turnover? Check whether you’re currently under the VAT threshold of £85,000 or over it. If it does apply to you in that instance, don’t rush in just yet.
There are a number of organisations that are either exempt from MTD or will have a deferred start date of October 2019. Check to see if any of these apply to you.
Note – if your business is deferred until the autumn, your business should have received a letter from HMRC by now.
Before you begin your planning process, work out your projected turnover for the next 12 months and consider what your year-end date is.
Use this information to determine whether your business is impacted by MTD for VAT.
2. Start now
Tripp Braden, performance coach: “It’s critical you get the pieces in place to make this happen seamlessly for your customers. If you’re a smaller business, this could be a great way to kick off your digital accounting procedures.
“This is a great opportunity to increase productivity within your accounting process.”
3. Preparation is the key to success
Keith Tully, partner, Real Business Rescue: “In order to prepare your business for the April initiative, establishing a timeline of actionable tasks can help get your business ready for Making Tax Digital.
“If you are switching over from one software provider to another, it’s important to start early in order to add contingency time to your schedule.”
4. Find a good partner
Tripp Braden: “Find a good partner who will grow with you in this process. This is just the beginning.
“Make sure the partner you choose understands the accounting applications and can help you with them. Make sure the solution you choose can provide other benefits across your business.”
5. Talk to the experts
Neil Cattermull, public speaker, consultant and commercial director: “If you haven’t started to prepare for digital taxation, talk to the experts in that field for the correct advice.”
Note – this can include your accountant if you have one, a tax expert or a business adviser who can help you move in the right direction.
Read more about Making Tax Digital:
- Making Tax Digital checklist: How to ensure you’re ready for MTD
- Making Tax Digital for VAT: What do HMRC’s updates mean for you?
- What the HMRC Making Tax Digital letters mean for your business
- Making Tax Digital: A guide for businesses
6. Take your MTD software for a test drive
Keith Tully: “Accounting software providers will be on track to make platforms MTD compatible, allowing you to submit VAT updates directly to HMRC, on a quarterly basis, and in accordance to HMRC standards.
“Look around for a multipurpose software provider that allows you to do more with your chosen platform.
“Source software that enables you to track cash flow, raise invoices and schedule payment reminders, all of which can help operational efficiency.”
7. Look for the stamp of approval
Keith Tully: “Many software providers have been championing the digital administration of financial data prior to the MTD announcement.
“If you fall foul of the measure, you may be fined by HMRC so don’t take the trial and error risk after the April enforcement date – look for the HMRC stamp of approval.”
8. Review your Making Tax Digital plan
If your business is already using accounting software, then you need to do a few checks with your provider. Ask them if the software you’re using will be updated to the latest Making Tax Digital-enabled version.
If it will be, check to see when this will happen.
It’s also worth working out when will be the best and most practical time for your business to make the software switch if you need to. For example, you might decide to do it after your year-end.
If you’re working manually, using spreadsheets for example, consider what steps your business is going to take so you comply with Making Tax Digital.
And if you’re using an accountant, it’s worth checking your Making Tax Digital plan with them. They might be able to offer some useful insights and advice.
9. Take a close look at your VAT process
Take the time to explore your current processes and think about any parts of it that need to change once Making Tax Digital comes into place.
For example, if you’re currently submitting your VAT returns through HMRC’s online gateway, that’s one process that will have to change.
Take a look at your software and see if it will allow you to submit your returns once MTD comes into effect. If it doesn’t speak to your provider.
By looking into this now, you’ll be clear what needs to be done ahead of April.
10. Give yourself time to adapt to the changes
If your business makes a start now with the changes to Making Tax Digital, you are much more likely to be able to fulfil your new obligations smoothly by the time we get to April (or October if your business is deferred until then).
Make sure you provide yourself with the time to adapt to the changes. And if you need support, it’s worth sourcing it now rather than rushing later down the line.
Changes are likely to be required and you want to make as little disruption as possible to your business.
Get ready for Making Tax Digital: Final thoughts
Spending time and money on Making Tax Digital might feel like a chore, especially if your business hasn’t yet started the process in making the move to it.
However, in the long run there are numerous benefits to have. The opportunity to save time and effort spent on record keeping; the chance to automate the process; the ability to have records that are accurate; the aforementioned savings your business can realise.
And if you submit your tax returns using accounting software, it will be a process that’s completed quickly.
And who wouldn’t want to spend less time on their business admin?
This is especially true when £30.8bn is spent on unnecessary admin by businesses every year. Time and money could be saved here.
So speak to the right people, put your MTD plan together and take the steps to get ready for Making Tax Digital.