Tax benefits: going digital

What is Making Tax Digital (MTD)?

MTD is essentially a new way in which HMRC wants to receive information from taxpayers. It ensures that all businesses are keeping digital records.

Eventually MTD will apply to all taxes, but initially, from April 2019, MTD will go live for VAT returns.

When will MTD go live and what are the requirements?

The information HMRC will require will be the same as it is now, ie nine entries from the nine boxes on the VAT return. The main difference is that the records underpinning the VAT return must be digital – manual paper records are no longer acceptable.

When HMRC carries out its regular inspections, it will expect to see these digital records and how the information “flowed” into the return.

All current accounting and bookkeeping software should be or will be compliant with MTD and therefore users of these applications should be able to comply without any action needed beyond ensuring that they are on the latest version of the software.

Further information and links to HMRC approved software can be found online. 

What if a business uses spreadsheets for VAT returns?

Businesses using spreadsheets have two main options. The first option is that they can migrate to a VAT-approved solution as described above. This will, of course, involve a learning curve in respect of a completely new approach to day-to-day bookkeeping and professional assistance should be sought. There will be added benefits of using these solutions, such as having more control over your business’ finances, which comes from the powerful reporting tools that this software can provide.

Modern software can also speed up the bookkeeping process by automating certain functions, such as using automated bank feeds.

Option two is that spreadsheet users can use bridging software. These are programmes that link to your existing spreadsheet and allow you to keep using it. The VAT return can then be filed from the bridging software. I have tested and can recommend two relatively cost effective solutions: Absolute Excel VAT Filer and Tax Calculator. 

When should business go digital?

Those businesses using paper or manual records will need to migrate to a digital solution before the April deadline. This solution can be either an MTD enabled spreadsheet (by using bridging software) or an accounting/bookkeeping package.

The decision on which option will depend on the size and wider needs of the individual business and, as with all decisions such as this, advice should be sought from a qualified accountant who can assist you with all or part of the compliance requirements, freeing up your time to grow your business.

Many opticians apply the partial exemption rules when calculating their VAT. This should not be affected by MTD as the exemption is included in the final VAT return figures being filed to HMRC. The businesses digital records should clearly detail the exemption.

TWD Accountants is an affinity partner of the AOP. For more information and advice, visit its website.

Image credit: Getty