Making Tax Digital: debunking the myths for businesses
From 1 April 2019, Making Tax Digital (MTD) for VAT requires most businesses with a turnover above £85k to keep and maintain digital records, and submit their VAT returns using MTD compliant software.
There are many businesses that are still unaware of — or confused about — these upcoming changes.
Below we’ve debunked five common myths about going digital.
1. If I’m using the current HMRC Gateway — I don’t need to do anything
When businesses are asked about MTD, the response is usually something like this, “I’m currently using the HM Revenue & Customs (HMRC) Gateway, so why should I change my processes?”
Simply put, it’s because the current HMRC Gateway is not the same as the new MTD system.
Businesses above the VAT threshold for VAT periods starting on or after 1 April 2019 will need to file using MTD-compliant software such as Xero — the HMRC Gateway will close off to these businesses.
2. I don’t need to worry about MTD until 2020
This really depends on the size of the business. If your turnover is below the £85k threshold but you’ve voluntarily registered for VAT, you’ll need to monitor the monthly turnover.
If the turnover tips over, your business will need to comply with MTD — even if it drops again.
“If you’re not currently using accounting software, keep in mind that transitioning can take time so give yourself enough space to learn the system and transfer records across — don’t leave it till March 2020,” says Cheryl Price, Xero partner and founder of CH Accountancy.
3. Paper records are sufficient — as long as I transfer the totals digitally
New Xero research has revealed one-third of small businesses still write down expenses and keep receipts in a bag. But under MTD all business records need to be kept digitally.
Businesses can continue using spreadsheets to calculate VAT and keep digital records but will still need to use HMRC-approved bridging software to submit VAT returns.
Paul Bulpitt, Xero partner and founder of The Wow Company says, “Five years after MTD, we’ll look back and think, oh wow wasn’t it crazy that we used to do it that way – this is so much better.”
4. My accountant will do it all for me
It’s true, your accountant can use their own MTD-compliant software to file VAT returns on your behalf.
However, you need to make sure that your entire record keeping process is digitised, preserved, and without any manual intervention.
So if you do your own bookkeeping, you’ll need to start using MTD-compatible software to ensure compliance.
“MTD will allow you to work more closely with your accountant, [so you can] reach your goals and business potential,” says Cheryl Price, Xero partner and founder of CH Accountancy.
5. Businesses will have to report more frequently to HMRC
This isn’t the case. VAT registered businesses with a turnover above the VAT threshold already have to report and pay any VAT due quarterly, so there’s no increase in the frequency, it’s simply a different way of filing the information.
Retention periods for documentation also remain the same as before — in general for six years after the end of the last financial year (there are some exceptions). Under MTD businesses will need to keep digital records for the same period.
Xero has been participating in HMRC’s MTD for VAT pilot since July 2018 successfully submitting live VAT returns using the beta version of Xero’s MTD functionality.
Register your interest, get up to speed and place your business ahead of the rest before the 1 April 2019 deadline.