What is MTD? … and more importantly, why?
MTD is a key part of the Government’s plans to make over the UK tax system. The key motivations behind this shift to digital are as follows:
HMRC wants better access to businesses’ financial data
it wants to significantly reduce the amount of errors that are made when businesses submit their tax returns and, by doing so
it believes it can collect an estimated £8bn in additional tax revenues to close the current tax gap even further.
Who does it affect and when?
Unless you are exempt, under MTD for VAT you will be required to maintain your accounts records digitally and submit quarterly updates to HMRC. From April 2019, businesses with turnover above the VAT threshold, currently £85,000, must maintain digital accounting records and use these digital records to meet their VAT-filing obligations.
Can I continue using spreadsheets or is software my only option?
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). We have yet to see how this will work in reality.
How can I begin to prepare for the changes?
If you are already filing VAT returns each quarter, you may not be far from ready. Still, how you prepare will largely depend on how you currently operate. If you are engaged with cloud accounting, you should assess your current software’s suitability for MTD. Conversely, if you still rely on manual record keeping, consider making the transition to digital sooner rather than later. There are business benefits to utilising software and you may find that it saves you administrative time once set-up.
How do I know which software to choose?
When choosing accounting software for your business, consider factors such as ease of use, pricing and key features. Distinguish between necessary features and those you would like it’s essential that the software meets the fundamental needs of your business, before anything else. 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.
How can my accountant help?
Your accountant can help you when it comes to choosing and implementing a system matched to your businesses requirements, something we are already assisting many of our own clients with.
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, as well as professional advice throughout the transition and beyond.
George Hay – which has offices in Biggleswade, Letchworth and Huntingdon – provides accountancy and taxation services to a wide range of businesses and individuals. If you would like to find out how George Hay can help you, please visit their website at: www.georgehay.co.uk.
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