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Making Tax Digital has now truly arrived

Anees Hussain profile picture

If you're new to cloud accounting or your business is considering making the transition, Anees Hussain from our tax department brings you up to speed with the fast-approaching Making Tax Digital (MTD) implementation.

We are all acutely aware that we live in a digital era, which is becoming ever-more cloud-based, with the rise of flexible business environments where we all work remotely. The tax world is also in a fluid state of change, with the strong shift towards real-time submissions of tax liabilities via the fast expanding Making Tax Digital initiative.

Before we know it, your tax liabilities will automatically be shown within your software at any given point in real-time, providing you with a clearer picture of where you stand from a tax perspective. This will enable you to manage cash flow more efficiently and focus on growing your business, with the peace of mind that you are well-informed of your obligations and not likely to be surprised by an unexpected tax bill!

MTD RECAP

For those who don't know, MTD is an initiative by HM Revenue & Customs (HMRC) designed to completely digitise the process of submitting VAT returns. This initiative is intended to make processing your tax compliance needs for your business much more seamless. It is meant to allow you to integrate your accounting software and record-keeping together so that it is much more efficient for you to submit your information directly to HMRC.

DIGITAL LINKS

The most important change is the requirement for “digital links” which was put in place from April 2021. As defined by HM Revenue & Customs, a digital link is “an electronic or digital transfer, or exchange of data, between software programs… [however] the use of copy and paste does not constitute a digital link”. The latter part here is the most pertinent for both businesses and their accountants. The whole purpose of the Making Tax Digital initiative is to eliminate any potential errors in incorrectly transferring the data across into MTD-compliant software.

In effect, the MTD initiative will not require your business to keep any further records – the records simply must be of a digital nature to comply. You can continue to use Excel spreadsheets under this initiative, provided they are imported rather than “copy and pasted” into MTD software prior to adjustments and submissions.

There is scope within the legislation for data to be transferred via a USB device which can be passed over to the individual who will file your return via MTD-compliant software, or indeed, even e-mailing a spreadsheet to be imported into the software.

You may operate a different software from your agent, provided there is a clear digital link between the transfer of information. There should be no manual entries or re-typing into the submission software (thereby eliminating transposition errors).

PAYMENTS & SUBMISSIONS OF VAT RETURNS

The use of MTD software will have no bearing on the deadlines for sending VAT returns and making any payments, irrespective of the VAT return scheme you have in place. The main difference lies in the fact that businesses must maintain digital records and send the returns to HMRC via MTD-compliant software.

The general viewpoint HM Revenue & Customs will adopt is that they will try to avoid issuing penalties where possible for non-compliance, provided that reasonable steps are being made to be compliant for MTD (particularly for businesses that are required to adopt MTD from April 2022 [see below]). Despite this, MTD is now becoming a compulsory matter. As such, all VAT-registered businesses must be putting policies in place in place to adhere to the new way of record-keeping and submitting VAT returns.

KEY DATES

  • For businesses that have taxable turnover of more than £85,000, the end of the “soft-landing period” is April 2021. At this point, you must be MTD-compliant in time for your first VAT quarter after this date.
  • It will be mandatory for all VAT-registered businesses, including where the VAT threshold is below £85,000, to put themselves in a position to ensure that they comply by April 2022. Any VAT-registered business can voluntarily sign up to MTD prior to April 2022.

CLOUD ACCOUNTING SERVICE

Of course, this is going to require planning, investment, and implementation – all of which we can help you with here at Page Kirk. We have dedicated experts well-positioned to advise you on how to achieve compliance with the Making Tax Digital initiative. We can also ensure that you save time and money by transforming your traditional book-keeping towards a more efficient cloud-based approach.

Our in-house team has expertise in software packages including QuickBooks and Xero and we are proud to hold the status of Elite QuickBooks ProAdvisor. Page Kirk has a dedicated cloud-accounting team who can not only serve your general book-keeping needs, but also your entire finance function in general, to enable you to maximise opportunities for growth and that all-important cash flow. Call 0115 955 5500 or email enquires@pagekirk.co.uk for more information.