Here’s some of the key things you need to know:
1: Making Tax Digital should make tax more efficient
Instead of filling in an annual VAT return, you will send information digitally at least four times a year. HMRC believe the system will make tax more efficient and it will provide you with a clearer view of your tax position – reducing the risk of errors and stop tax due or repayments owed from building up.
2: You won’t be automatically signed up
If your business is above the £85,000 a year threshold, you won’t be automatically signed up to Making Tax Digital. You need to sign up your business using your Government Gateway login and VAT number. Confirmation can take up to 72 hours.
3: You need to keep digital records
They must include:
- The time of supply (tax point)
- The value of supply (net excluding VAT)
- The rate of VAT charged
- Information about your business, including the name and address
- Your VAT registration number and details of any VAT accounting schemes you use.
4: You’ll also need to use compliant software
HMRC has issued a list of compatible software1, which includes products such as Xero and Quickbooks.
5: There could be a cost implication for your business
If you don’t already use accounting software for your business, you will need to sign up to some and probably pay ongoing fees. You may also need to pay to train your staff in the software.
6: If your business has taxable turnover below £85,000, you can still sign up
You can still sign up to Making Tax Digital voluntarily and HMRC encourage you to so.
7: Making Tax Digital is in the pipeline for Income and Corporation Tax too
HMRC will eventually introduce Making Tax Digital for Income Tax and Corporation Tax. The earliest these changes will be phased in is April 2020. If you’re self-employed or a landlord you can sign up to a digital tax returns pilot scheme. This will allow you to keep records digitally and send Income Tax updates to HMRC instead of filling in a Self Assessment tax return.
8: There’s an introductory period for the new rules
HMRC have said that they recognise businesses will need time to familiarise themselves with the new rules, so will apply a “light touch” when it comes to digital record keeping and filing penalties in the first year, so long as businesses are doing their best to comply.
The UK government are issuing up-to-date guidance on Making Tax Digital regularly, so keep an eye on the updates at www.gov.uk/government/publications/making-tax-digital.
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