What is Making Tax Digital (and what should you know)?

| 28-02-2018

If 2017 was the year of duty to report on payment practices and 2018 will be the year of GDPR – 2019 is going to be the year of Making Tax Digital (or MTD as it’s becoming known), because the legislation comes into effect on 1 April 2019.

 

If you’re tempted to kick preparation for MTD into the long grass, you’ll be far from alone: a recent Accountancy Age webinar on Making Tax Digital revealed that 68% of businesses were either only slightly prepared or not at all prepared for the move. On the other hand, if you engage with it now, it will be less of a scramble later. So, here’s the lowdown on Making Tax Digital...

 

Putting MTD into context

The government says MTD has been designed to ‘make it easier for individuals and businesses to get their tax right and keep on top of their affairs – meaning the end of the annual tax return for millions.’ In essence, it’s following the general trend to moving business online. Whether it’s cloud accounting, banking or ecommerce, more and more businesses and people are embracing what the internet has to offer in some form or another when it comes to finance.

 

There’s also the tax gap to consider. HMRC estimates it’s missing £9.4 billion in tax revenues due to errors and ‘failure to take reasonable care’ in submissions. By digitising returns via MTD, it hopes to close this element of the tax gap.

 

If your expenses and invoices are still mainly paper-based, and you use Excel spreadsheets (and files) to keep on top of them – things are about to change.

 

Understanding the requirements

On 1 April 2019, MTD will come into effect for businesses with a turnover above the VAT threshold (currently £85,000). With a few exceptions, it will apply to unincorporated businesses, companies, LLPs and charities.

 

From that date, these businesses will need to:

  • Keep their records digitally (for VAT purposes only), and
  • Provide their VAT return information to HMRC through MTD functional compatible software

 

The information businesses will need to submit include:

  • Business name, principle place of business and VAT registration number – this ‘designatory data’ will also include information about which VAT accounting schemes are used
  • The VAT account that each VAT registered business must keep, by law – the VAT account is the link – the audit trail – between primary records and the VAT return
  • Information about supplies and services made and received

 

That means that all data and evidence in relation to company spend – receipts, invoices and such – need to be captured digitally and submitted to HMRC using compatible software.

 

You can find more information on the government website.

 

Recognising the opportunities

If your business hasn’t already embraced cloud accounting or digitisation, it’s all-too-easy to see MTD as yet another headache and expense you could do without.

 

However, when you start to implement the systems the new regulations will need, the ability to comply will be one of the smaller benefits your business gains. The difference technology can make is perhaps best summed up by talking to businesses already embracing it.

 

We asked one SAP Concur client about what he would say to businesses considering implementing finance automation. He replied: “What are you waiting for? Do it sooner rather than later because it will transform your finance processes.”

 

Respecting the challenges

While there’s no doubt that MTD could be the catalyst for wider business benefits and efficiencies, there’s also no doubt there are challenges if your organisation is still working with paper-based processes. MTD is going to involve a step change in ways of working and culture shifts will be needed, which is why starting sooner rather than later is important.

 

Deciding on the next steps

If you’re already partnering with reputable suppliers (such as SAP Concur) who help you embrace what technology has to offer, the truth is that MTD isn’t going to hurt much, if at all. If you need to make changes to meet the requirements of the legislation, it’s time to start thinking about it and considering the wider benefits to your business of harnessing what technology has to offer.