Making tax digital for VAT

What is Making Tax Digital?

Making Tax Digital (MTD), in particular MTD for VAT, is the first stage in the wider process of modernising the current tax system.

MTD will be compulsory for VAT registered businesses from 1 April 2019 and will introduce the requirement for businesses to keep their VAT records digitally and submit VAT returns using functional compatible software.

MTD Compliance: Functional Compatible Software

Essentially, MTD functional compatible software is software that allows businesses to record and preserve the digital records as mentioned above in an electronic format and to submit and receive information directly to HM Revenue & Customs (HMRC).

Although still in draft format, this legislation will be in effect for most businesses from 1 April 2019 and, with less than a year to go, it is now more important than ever to think about your current accountancy software.

The following software providers have confirmed that by 1 April 2019 their software will be MTD compliant:

Xero
Quickbooks
Sage (v24)

But please note that Sage will not be updating earlier versions of the software to be MTD compliant and as of 15.02.18 have closed the facility to make HMRC submissions directly from earlier versions of the software.

The Silver Lining

Admittedly, when we first heard about MTD the biggest worry seemed to be the extra administration this would mean for clients, but actually this has been a blessing in disguise. Accountancy software developers grasped the opportunity to become creative and developed some fantastic software;

add-ons which really do make book-keeping quicker
Smartphone apps that input data directly into accountancy software from just a picture
access to accounting records remotely
software that learns how to correctly allocate expenses based on your previous activity
using secure online banking connections to recognise income in real time.

Gone are the days of manual double entry and bank reconciliations, here are a few of our favourite software add-ons and apps:

Xero accounting software is a very intuitive and useful accounting package. It automates many of the time-consuming tasks. For example, it links directly to your bank and post transactions straight into your accounts and suggest the entries to match it to. This makes you information live, you know exact what you ow and what you are owed. It also emails out sales invoices and tracks if they have been received, opening and printed. You can add a pay now button to ensure you get paid faster. Xero costs between £10-27per month for unlimited users and you are not tied into a annual contract, this also includes support.

Xero’s real power is in its add on market place. Much like Apple it has over 600+ accounting and industry specific add-ons. As Platinum Xero Partners we have a dedicated team who focus on ensuring you get the best apps to make your business more efficient and to enable you to grow.

One of our favourite add-ons is Auto-Entry which scans your purchase invoices, reads them and creates the accounts entry for your Xero accounting software and then attaches a picture to the line in your accounts. What’s more these images are tax documents, which mean you no longer need to keep the paper copies. The cost is minimal on a few pence per invoice with no tie in.

MTD Compliance - the records that will need to be kept digitally

HMRC recently issued guidance on this.

MTD Compliance: Digital Record Keeping

Under MTD, certain VAT records will be required to kept digitally:

Information about your business:

Your business name:

The address of your principle place of business
Your VAT registration number
A record of any VAT accounting schemes that you use

Information about your sales:

Invoice date
Value
Rate of VAT applied

Information about your purchases:

Invoice date
Value
Amount of VAT claimed

To learn more about how these changes will affect your business please contact Tim Baum-Dixon on 0114 2671617 or click here to arrange your free consultation.