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Making Tax Digital: Software, spreadsheets or sheets of paper?

Making Tax Digital (MTD) is a Government initiative that represents a fundamental change to the current UK tax system. It is part of a plan to establish a more efficient, effective and user-friendly tax system. The Government anticipates that the taxpayer will benefit from a more streamlined means of record-keeping and of providing information to HMRC.

On the back of harsh criticism from businesses and industry professionals HMRC announced, in July 2017, that it would be amending the timeline for implementation to give businesses more time to prepare for the changes.

Initially MTD will apply, from 1 April 2019, to businesses whose turnover exceeds the VAT threshold (currently £85,000). These businesses will be expected to keep digital records and make quarterly submissions to HMRC, for VAT purposes only.

The scope of MTD will not be widened before the system has been shown to work well and not before April 2020 at the earliest. 

New digital requirements

A business that falls within the scope of MTD must use ‘functional compatible software’ to fulfil the new requirements. Software must be able to connect to HMRC systems via an Application Programming Interface (API), to be fully compliant with MTD.

When considering what you need to do to comply with MTD, you will likely fall into one of three categories: 

• Currently using software

If you fall into this category the transition to Making Tax Digital may be a little easier, but this doesn’t mean you should be complacent. You must ensure the software that you are using is MTD compatible. If it is not compatible, you must act to ensure that you are fully compliant ahead of your implementation date, whether by purchasing new software or upgrading your existing platform.

• Currently using spreadsheets

HMRC has said that most businesses can continue to use spreadsheets for record keeping but these must be combined with compatible software, capable of connecting to HMRC systems via an Application Programming Interface (API), when making submissions to HMRC.

• Not using spreadsheets or software

Businesses will no longer be able to use manual records, subject to limited exemptions. Instead, businesses must use ‘functional compatible software’, as aforementioned. Transitioning from manual to digital record keeping will be challenging for some. Hence, businesses should prioritise preparations now and seek professional advice where appropriate.

Decisions, decisions, decisions…

When choosing accounting software for your business, you should consider factors such as ease of use, pricing and key features. Distinguish between features you require and those you would like; it’s essential that the software meets the fundamental needs of your business. In addition, to satisfy HMRC, software must be able to:

• preserve records in digital form;
• create a VAT return from those records;
• achieve two-way communication, with HMRC, via the API.

We can help you when it comes to choosing and implementing a system matched to your businesses requirements and we can provide professional advice throughout the transition and beyond. We support a range of online accounting software packages. So, when it comes time to take the leap, we have trained advisers on hand to provide as much or as little assistance as you require.

To find out more visit: www.georgehay.co.uk, email us at letchworth@georgehay.co.uk or call us on 01462 708810.

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