Are You Ready For The Making Tax Digital Deadline?
With the deadline fast approaching, for many businesses to become Making Tax Digital (MTD) compliant, it’s essential to ensure yours is ready. Although HMRC chooses to adopt a soft-touch approach during year one, failure to comply in the long run will ultimately lead to fines for businesses.
What is Making Tax Digital?
Making Tax Digital is HMRC’s vision of a paperless future when it comes to tax. It’s a bold attempt at becoming one of the most digitally advanced tax systems in the world. For many businesses, it should have come into force in April 2020, but due to the pandemic, HMRC announced a soft-launch period of one year.
For many businesses, this means that there is a new deadline of 31st March 2021. This deadline applies to companies with an annual turnover of over £85,000. Businesses with a turnover below this have until 31st March 2022 to become fully compliant.
Private landlords and the self-employed who earn over £10,000 have until April 2023. As of yet, there have been no dates set for corporation tax to become digital. HMRC will likely evaluate the success of Making Tax Digital for VAT first.
Making Tax Digital means you will now be required to submit your VAT invoices and returns via a digital link. Links within your businesses systems should also be digital, ensuring the data has a digital journey with less room for error.
HMRC class a digital link as; “One where a transfer or exchange of data is made or can be made, electronically between software programs, products or applications. That is without the involvement or need for manual intervention such as the copying over of information by hand or the manual transposition of data between 2 or more pieces of software”.
They have also acknowledged other digital links, such as data transfer via an API or the emailing of CSV files for import into other software. Linked cells in a spreadsheet will also count, which will undoubtedly create a sigh of relief amongst smaller businesses.
Businesses must submit their tax data quarterly using software that is compatible with that used by HMRC. If a business’s software is not consistent, they have two options, They can replace or upgrade their software to one that is, or they can use additional bridging software which will sit between and transfer data.
For many larger businesses, the transition should be relatively pain-free as most of the big business solution providers have already updated their software to be MTD compliant. Two of the UK’s biggest providers, NetSuite and Sage, are fully Make Tax Digital compliant, meaning their customers can relax somewhat.
How do I get ready for Making Tax Digital?
Firstly, audit your current processes, systems and software. You can do this internally or by enlisting the help of companies like Eventura. It’s sensible to have procedures in place before signing up to Making Tax Digital, as you will need to keep digital records straight away. You will also need to send HMRC your first tax records and returns three months later.
You should look for your business areas where data transfer doesn’t meet the Government’s criteria of a digital link set out. You should rectify any shortfalls, so they are made compliant. You also need to check your software is on the list of compatible ones issued by the Government. Your software provider will know if they’re compatible, so you can also ask them.
If your software isn’t capable of sending your tax information to the Government digitally, you will need to source a solution. It’s possible that some bridging software could help, or it could mean that you need to upgrade to your existing software or buy new.
Once your business is ready, you can register for Making Tax Digital on the Government’s website here. You will need the following information to register;
- Registered name of your business.
- National Insurance Number
- Business email address
- Bank account type
- Accounting period
If you use an external accountant or agency, you should get in touch with them now. They will need to register your business for you. You will then receive an email to approve them as the individual who will digitally submit your tax information.
What are the benefits of Making Tax Digital?
In theory, it should make submitting your tax records and returns less of a hassle. If they’re all kept digitally and submitted digitally, it should also take less time. The initial transition period might feel a little rough, but your business could see the benefits once you’ve navigated it.
Because you are submitting information quarterly, you can see how much you owe in taxes as you progress through the year. You can offer them more frequently if you want to, meaning you gain almost real-time awareness of your taxes.
There is also far less room for error with the process being digital. This increased accuracy means you might see a reduction in the number of audits you receive. It can only be a good thing not to have HMRC knocking on your door now and then.
It might all seem a bit daunting, but quite simply, it’s here, and there is no way of avoiding it. If your business turns over more than £85,000 a year, the deadline is days away, so every effort needs to be made to make your business compliant.
If your business turns over under £85,000 or you’re self-employed or a landlord, you have a bit longer to make the necessary arrangements. However, it would make sense to make your business Making Tax Digital compliant as soon as you can. That way, you will have navigated any teething problems by the time the deadline arrives.
Only time will tell if Making Tax Digital stands up to its promise of making tax more accurate and simplifying how businesses submit their tax information. If your business needs help making the transition, you can request a free callback to speak to an expert from our Finance and Accounting Software team here.