If Making Tax Digital (MTD) for VAT applies to your business and you use an accountant or other financial professional for your company, it’s likely that you will already have heard from them regarding your MTD requirements.
While it’s the responsibility of their clients to observe the MTD for VAT rules, most accountants believe they have a duty of care to help businesses implement MTD for VAT.
Indeed, HMRC has relied on the UK’s network of accountants to do this.
This was certainly the case for Sudipta ‘Sid’ Moore, of Moore Accountancy, which is based in Altrincham, just outside Manchester.
Her practice continues to help and advise clients on how to convert to MTD as various initial VAT deadlines come into view.
When it comes to MTD for VAT, her advice for you is pragmatic: “Embrace what’s happening. Don’t be scared by it, and remember that MTD is the way forward, so you’re going to have to do it no matter what.”
In this article, Moore shares four pieces of advice on Making Tax Digital and reveals how her practice has helped businesses with the new legislation.
And there’s a checklist below to help you with your MTD preparations.
1. Speak to your accountant about Making Tax Digital
A big problem has been businesses receiving communications about Making Tax Digital for VAT and not realising the magnitude of the changes required. Others didn’t understand the MTD timeline.
“We had people thinking it had to be done straight away when emails were received from HMRC in January and February 2019,” says Moore.
“But they actually didn’t need to do anything until after April 2019. And we had problems where some clients signed up without realising that their software wasn’t compatible.”
The moral of the story is simple: if you use an accountant, speak to them about Making Tax Digital before doing anything.
She adds: “We have a complete checklist where we ask, ‘Have you ticked this box? Have you done this or that?’ We try to communicate with clients.
“Speaking to your accountant ensures you’re kept in the loop.”
2. Look at updating your accounting systems
The often out-of-date software clients use has been a hurdle for Moore and her colleagues as well as the businesses concerned.
She says: “We talk to clients and see if they can get an upgrade for the software they’re already using because if they’re comfortable with it, then why change?
“Some of our other clients have been on some really old software, and said, ‘Actually, now is a chance to do things in a new and fresh way.’ Our advice to them is to use the trial periods for different packages.”
Moore advises businesses to run their old account system concurrently with the new one, so they can test the replacement.
She says: “They can get a feel for where things are and how it works differently to what they were using. It’s a bit time intensive but it means that they make an informed choice.”
Some accountants, including Moore, offer training.
“Software vendors offer training and online portals, and there are YouTube videos galore,” she says.
“People can learn themselves. But I think for a basic crash course of all you need to know, visiting your accountant for an hour is the best way to do it.”
3. Bridging software doesn’t cover digital record-keeping
It’s a fallacy to believe there’s a generational split when it comes to business owners and managers, says Moore. She finds both young and old are willing to embrace MTD.
The exception is for businesses that might be sold or closed in the coming years.
She says: “We’ve tried to push MTD as much as we can. But we can’t force anybody to do anything.
“For some people who might probably be retiring in the next couple of years, we are keeping them with Excel and using bridging software.
“They won’t be around when MTD for income and corporation tax comes around.”
Similarly, there are some businesses that are perhaps smaller that just refuse to switch to fully digital accounting software.
“You can’t win every battle,” continues Moore, and she adds that these clients also use a bridging solution, which means they can continue using spreadsheets for their accounting.
“For some of them over the next year or so, we might slowly get them on to more compatible software.”
Remember, bridging software doesn’t deal with other areas of MTD compliance, such as digital record-keeping, so it’s best viewed as a short-term option.
If you want to set your business up for the future, adopting compatible Making Tax Digital software could save you a lot of time.
Read more about Making Tax Digital
- How to submit a Making Tax Digital for VAT return
- Making Tax Digital and its future: 10 answers from HMRC
4. Understand how MTD will simplify your accounts
“We still have clients who wait for their year-end and then say, ‘Oh yeah, I better do the accounts for the last year.’ They’re literally doing a whole year’s worth of accounts in one go,” says Moore. “MTD means they won’t be able to do that going forward.”
But it isn’t just about changing requirements for how businesses handle their accounting.
“I think MTD means businesses will have so much more information available at their fingertips,” says Moore.
“Their processes will be a lot more streamlined. Their accounts will be so much simpler and they will be able to actually gain more management information out of it.”
Similarly, she continues, the service people get from their accountants will change too.
“I think we’ll be a lot more advisory,” she says. “For example, there’ll be a lot more tax planning than we do at the moment.
“What accountants do will be similar, but in more depth. Businesses will get more value out of it.”
MTD is ultimately a good thing, says Moore, even if it has presented businesses with some challenges.
She adds: “It’ll make your life better in the long term because you’ll be able to get so much more out of your accounts and out of your processes. There are benefits for the business overall.”
Get started: A Making Tax Digital checklist
Here’s our four-step process to follow to ensure your business is ready for MTD for VAT.
1. Determine whether you’re impacted by the change
Are you currently under the VAT threshold (currently £85,000)? Will you be eligible for Making Tax Digital?
Get your business details in order before beginning. Consider your:
- Projected turnover for next 12 months.
- Year-end date.
2. Review your working methods
If you’re already using accounting software, check with your provider if you have been updated to the latest MTD-enabled version.
If a change of software is required, you may want to establish the most practical time for your business to do so – after your year-end, for example.
While it’s possible to using bridging software to make spreadsheets compatible with Making Tax Digital, many experts agree this should be a temporary solution and a move to digital will make things much easier in the long run.
The best way to work to make a meaningful change is to examine the way you currently operate:
- Do you use software? Is it MTD ready?
- Do you work manually, through Excel, or do you have an alternative in place?
- If you work with an accountant or bookkeeper, what do they think?
3. Review your VAT process
Work with your partners, accountant and/or bookkeeper – and don’t hesitate to get support from your software provider if you will be utilising accounting software for the first time.
Outline the processes you may need to change:
- Are you submitting through HMRC’s online gateway? Are you using spreadsheets or paper?
- Do you have any adjustments to make before your first MTD for VAT filing?
4. Adapt now
The faster you get started, the more likely you are to fulfil your new MTD obligations. You will need time to adapt and get the support you need to minimise the impact on your business.
There is no time for hesitation, or to put off adapting your business to MTD for VAT.
The ultimate guide to Making Tax Digital
Is your business ready for Making Tax Digital? Download this free guide to find out what it means for your business and the steps required to submit VAT returns.