Making Tax Digital for business starts on 1st April this year and begins by focusing on VAT. From that date on VAT registered businesses, who are above the £85k threshold will have to keep digital records and submit VAT returns using compatible software. What does that mean for your business?
Record keeping Businesses will no longer be able to keep manual records. Digital records must be maintained in what is defined as ‘functional compatible software’ which HMRC define as software which can connect to HMRC via an Application Programming Interface (API). These must also capture more information than is currently being recorded. This is where Spectrum come in. Many businesses still rely on old Excel spreadsheets, or manual records. Making the transition to acceptable software in time will be a challenge, particularly for smaller companies. Spectrum can provide you with affordable cloud based bookkeeping solutions to suit your individual business needs. While we work primarily with Xero and Receipt Bank, we support businesses with QuickBooks, Kashflow, Freeagent and Sage, and can help you transition to a Making tax Digital compliant platform.
What does digital mean? HMRC expect companies to keep digital records for all transactions. It wants this information to be processed and submitted digitally without any re-keying, and that includes manually copying and pasting. Links between programmes are possible, but they must be digital, not manual. Details of all VAT transactions must be kept in a digital format so, as we mentioned above if you are currently keeping manual books and records or using a combination of manual and computerised bookkeeping then looking at one of our cloud accounting options needs to be done as soon as possible as you will no longer be able to maintain VAT records in the same fashion. The requirement to keep VAT transactions preserved in a digital form for six years make cloud computing the only viable option for most businesses. Keeping them on a local PC or server won’t guarantee the required life expectancy, all it needs is a failed hard drive for you to stop being compliant.
Timescale: April 2019 remains a challenging time frame, particularly as the software trials were only opened to qualifying taxpayers quite late in the day. This is where Spectrum’s flexibility in using cloud-based accounting systems gives you an advantage. Cloud accounting allows both our clients and our team to access the same set of records in real time from anywhere. Being tied to a desktop-based system will slow processing time and reduce the security of your data, as they can be edited by anyone with access to the system, leading potentially to errors creeping in.
Initially, only summary VAT return data will need be submitted to HMRC. Supplementary data might be requested by HMRC later although, the nature and scope of what that supplementary data may be has yet to be defined.
Other aspects of Making Tax Digital, such as income tax and corporation tax, have been placed on hold until at least April 2020. It is possible that Brexit occurring at the same time may yet have an impact on implementation of Making Tax Digital. Keep reading our blogs, and get in touch to discuss your specific situation.
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This post was written by Daisy Vowles