What is Making Tax Digital?

You will have no doubt heard about HMRC’s plan to make tax digital.

To be brief, Making Tax Digital (MTD) is the government’s plan to transform the tax system and move it online. It will affect most businesses.

The primary aim is to make tax administration more effective, efficient and easier for taxpayers. And of course, as we have suspected for some time, HMRC are making this move to get a closer look at your business data and reporting trends, putting you at higher risk.

However, with improved and regular management accounts this change will aid the growth of your business and cash flow planning.

The facts you need to know

Phase 1

From 1st April 2019

From April 2019, if you are VAT registered business, trading above the VAT limit of £85,000, you will be required to submit quarterly VAT information digitally.

So if you’re VAT registered, or close to the threshold, and don’t currently use a digital accounting package (like Xero) to record you VAT information, you need to catch up – and fast.

If you have missed the deadline and still aren’t compliant, our team can help you start making the steps to comply in order to avoid a penalty.

Phase 2

From 1st April 2020

From April 2020, HMRC will widen the scope of MTD by including all businesses (limited companies, LLPs, partnerships, sole traders and landlords receiving more than £10,000 income annually). This will likely include submitting a profit and loss report and balance sheet to HMRC quarterly, with the option to pay your tax as you go.

Get ahead of the game and ensure you are compliant for MTD before the deadline creeps up on you. Our team can put together a plan of action and talk you through everything you need to do to get  compliant, including demoing cloud accounting software, helping you understand your management accounts better and finding the right tools to automate your processes (leaving you more time to do what you do best).

Does this mean I’ll have the stress of completing a tax return 4 times a year?

Yes. If you make no changes to how you are currently operating or planning then this change will just be more deadlines for your business. And leave you at higher risk of an enquiry.

man using Xero on laptop

Does this mean I’ll pay more tax?

No – you’ll still only be paying tax once, at the end of year. But by using cloud accounting software, like Xero, you’ll be able to calculate your tax bill throughout the year and save accordingly. This means you’ll be more organised when it comes to the end of year tax returns.

It’s likely you will actually pay less tax! Being more organised and on top of your cash flow will allow you to remember expenses you’ve paid for personally and undertake your tax planning during various points in the year.

woman using Xero on her phone

Smart businesses are using MTD to get ahead

Our forward-thinking clients are taking advantage of the call for quarterly submissions by receiving management accounts from us on a quarterly basis.

Having regular understanding and analysis of your financial data in real time will allow you make key decisions and unlock the potential for growth in your business:

Take advantage of Making Tax Digital by:

  • Being better informed all year round, putting you in the driving seat of your business
  • Seeing the early warning signs of cash-flow problems
  • Making long term strategic decisions based on real time performance
  • Putting yourself in a more appealing position to potential lenders

Book your free 1-2-1 MTD Discovery Session

Get in control of your business before HMRC start poking around

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