In our previous blog-post, we went into detail about what Making Tax Digital is and how it affects you. Following on from that, we wanted to write about how to prepare in time for the MTD changes. Read on to learn more about keeping business records, compatible software and current developments with the MTD initiative.
Let's recap
Making Tax Digital is the new government initiative to digitise taxes with plans to fully implement the process by 2020. It has already been introduced for VAT and is currently undergoing trials for Income tax. Great, you're all caught up!
But if you haven't seen our initial blog-post on the topic, we recommend you read the full article here. It's a more comprehensive introduction to MTD.
Keeping Records
Businesses that meet the VAT threshold have already started using MTD, whereas certain businesses with complex situations have until October 2019 to allow a transition period. If your business doesn't have a taxable turnover, you can voluntarily sign up for MTD in order to prepare and benefit from the process.
The best way to prepare is to start keeping your records digitally from the beginning of your accounting period. With VAT, most accounting periods started around April 2019, hence MTD being mandatory for businesses with a taxable turnover.
You may already be storing your records digitally. Many systems and software should be adapting to the MTD requirements and will likely have updates to accommodate that. If that's not the case, we'll be going through other MTD compatible software further down.
Spreadsheets
It is possible to do your record keeping on a simple spreadsheet however, you will still need MTD compatible software to send and receive information from HMRC in the correct format. The information cannot be physically re-typed into another software package.
Bridging Software
This is the software that can take digital records from other programmes e.g. spreadsheets or other record-keeping applications and convert them into an MTD compatible format which can then be sent to HMRC.
Considering this, it would be beneficial to transition to a software provider with full MTD capabilities. However, if your business has been using spreadsheets as a means of record-keeping, the option is still there when MTD becomes mandatory.
MTD Compatible Software
There are various well-suited Softwares, some for VAT and some for Income tax. If you haven't already, you will have to do some research and find a software provider that meets your unique business requirements.
Since VAT Making Tax Digital is obligatory as we speak, chances are you already have a system in place, but it may be worth looking into whether your software provider has plans to add Income Tax compatibility. Find said software here or search for different MTD programmes here.
Income Tax Pilot
As mentioned before, they are currently running trials for Income Tax MTD which you should consider joining to be better prepared and understand the process during the pilot period. It'll give your business a head start when Making Tax Digital becomes mandatory in 2020.
That's the basic rundown of MTD and the software you need to be aware of. Make sure to read our first blog-post on Making Tax Digital to better understand the process and be prepared!
