This month’s blog comes from Clive Owen LLP Business Advisers and Accountants, who must be congratulated on their win at the North East Accountancy Awards last month. The blog comes from Partner, James Catterick. I am sure you will find it very informative.
What is Making Tax Digital?
Making Tax Digital (MTD) is the drive towards digitalising the taxation system in the UK. The reality of this is that businesses will be forced to keep their records digitally, for example, on a cloud based accounting system.
Those digital records will then be used to electronically submit information to HMRC on a quarterly basis. This is also coupled with ‘voluntary’ pay as you go taxes.
MTD will be implemented in stages, starting with VAT then moving onto other taxes. HMRC will collect the data and feed back to individuals and businesses with estimations of their tax liabilities. For HMRC this will be exceptionally useful in trying to forecast tax receipts. For businesses, this makes quarterly record keeping accuracy far more important but it is also an opportunity for forward thinking tax and strategic planning.
When is it coming?
The VAT part of MTD is going to come into effect from April 2019 meaning all VAT registered businesses (i.e. a turnover greater than £85k) will have to submit their VAT returns via ‘functionally compatible’ software.
There are a small number of exemptions that will not apply to the vast majority of the business population.
Once MTD for VAT is up and running, the scope of MTD will widen to include VAT registered businesses under the VAT threshold, income taxes, corporation tax and even further. Ultimately, this will affect almost everyone.
What are the challenges?
The change will require a large volume of businesses currently using manual accounting records and those using systems that are not integrated with their accounting system to make some tweaks to their processes and / or software. In addition to the challenge presented in converting a businesses existing records, clearly a large number of business owners and their staff will need to be retrained to use the new systems and processes.
The situation can be more complex for those who have an amalgamation of systems, as to satisfy the technical requirements these systems will need to have a ‘digital link’ and information should not be manually re-keyed from one system into another.
This coupled with the fact that HMRC initially delayed the conversion deadline by 1 year has led to many people to believe the change isn’t going to happen. Let me assure you that it is and you must check you are compliant!
We foresee that there could be a scenario of a ‘rush’ of businesses wanting to change or update their accounting system as the April 2019 deadline approaches. This could be a challenge in itself but an even larger pressure point will follow from training their staff in its use. As such we are advising people not leave it to the last minute.
How can we help?
We have been working on MTD for a number of years now via our Clive Owen Managed Services (COMS) department. Our work has included developing conversion and support plans for MTD for numerous clients including assisting over 200 clients in moving to cloud accounting systems. Our COMS team have also been involved in software testing and development for some of the largest providers of accounting software.
We very much believe that cloud accounting systems are a core part of the MTD solution. This is due in part to the fact that you are always logging into the latest version, so the technology should be fit for purpose, but also that it brings many other benefits such as accessibility, collaboration, ease of use and that it is relatively inexpensive.
Therefore, we are offering our clients support in converting to three of the leading MTD compliant cloud based accounting systems:
• QuickBooks Online
• Xero
• Sage Business Cloud Accounting
As part of our conversion offering we have developed a library of “bite size” training videos to support you and your staff post conversion. These provide simple non-technical examples of how to complete common tasks within each system and are just one of many ways we are hoping clients adapt to MTD.
If you have any questions regarding MTD please contact Ian Jarvis or Lee Watson on 01325 349 700, James Catterick 01904 784 400 or Nicola Bellerby 0191 384 2244 who will be delighted to help.
