If you are in business then the next hurdle that you may be facing is Making Tax Digital (“MTD”). In this article I will look at the basics of MTD.
I say “may” because two conditions both need to be met before you are affected, at least initially. The two conditions are:
– You are registered for VAT; and
– Your taxable turnover is above the VAT threshold, currently £85,000pa.
If both of the above conditions are met then you will need to comply with the MTD regulations for your first VAT period commencing on or after 1st April 2019.
As at present, if your taxable turnover is close to the VAT threshold then you will need to monitor your turnover closely. If in any period of 12 complete calendar months or less your taxable turnover exceeds the VAT threshold then, unless you are already registered for VAT, you will need to register for VAT within the following month to take effect from the 1st day of the month thereafter. You will then become subject to the MTD regulations.
Once you are required to comply with the MTD regulations then you will always be subject to them even if your turnover reduces to below the VAT threshold, unless you deregister from VAT.
If you are required to comply with MTD then you will need to keep and preserve your records in a digital form. This is not difficult, and it is estimated that around half of all businesses already do so.
Firstly, if you keep your records using a proprietary accounting package such as Kashflow then, provided that it is recognised by HMRC and the majority are, then you will already be maintaining your records in a compliant manner.
If you are using a spreadsheet to record receipts and payments then this will be sufficient to comply with MTD. You will need to have access to bridging software as the HMRC Online tax service will no longer be available, but most accountants can provide this access.
Do not be fooled by the frequent television adverts by the two largest software suppliers who are trying to persuade you that their product is essential to comply with MTD. It is not!
If you are keeping your records on paper then you will need to change to digital record keeping. Again, your accountant can assist you. However, please remember that both conditions at the top of this article need to be met before MTD applies. If you are below the VAT registration limit then MTD does not apply, even if you are VAT registered voluntarily.
WatkinsonBlack have considerable experience in all areas of taxation and business services, including providing a very cost-effective payroll bureau service. If you want to arrange a no-obligation initial meeting on any taxation or accounting matter then please contact us. Please note that these ideas are intended to inform rather than advise and you should always obtain professional advice before taking any action.