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What Making Tax Digital means for businesses

If you are a business who is VAT registered and with a turnover at or beyond the VAT threshold, then you have until April 2019 to put in place arrangements to comply with the new requirements.

Making Tax Digital (known as MTD) is a Government initiative aimed at simplifying the way businesses report digitally their income, expenditure and taxes.  

The first stage of the ‘roll out’ takes effect from April 2019 where businesses who are VAT registered and with a turnover of above the VAT threshold (currently £85,000) will need to submit their VAT returns through an accounting software that is Making Tax Digital compliant.  You will no longer be able to submit your VAT return through the HMRC gateway.

With April 2019 now fast approaching, it is important to act now to make sure that you will be able to comply with these requirements.

Step 1 – Find out if your current software will be Making Tax Digital compliant

You can do this either via your accountant, if they provided or recommended your software, or go to the software provider directly and ask the question.  The question is simply ‘will the software I have be Making Tax Digital compliant ready for the new arrangements in April 2019?’

You may find that the software provider simply says yes.  In which case, you can simply await further updates from your software provider.

Your software provider may say yes but not on the version of the software that you hold and that you would need to upgrade your software in order to access to the version which will be Making Tax Digital compliant.  You therefore need to make the decision as to whether you want to pay for this upgrade because you are happy with your current software or whether you want to take the opportunity to consider other softwares.

If you are doing your bookkeeping on an excel spreadsheet, then there is no software provider to ask.  Your options are either to move on to a software that will be Making Tax Digital compliant or find another mechanism for your spreadsheet information to be submitted like a bridging software for example.

Step 2 – Decide which software you are going to use

If you are going to continue using your existing software or upgrade your existing software, there is no action to take.

However, if you are currently using a spreadsheet or if you are using a software that isn’t going to be Making Tax Digital compliant then you will want to research the various softwares available to you and make an informed decision.  As well as seeking a software which will be Making Tax Digital compliant, it is important to also ensure that your software meets other needs of your business.  Here are some questions to think about;

  • Do you have existing systems you want to integrate your software with?
  • What are the problems you have with your existing arrangements that you would like to solve using this software?
  • Are there any specific things you need to be able to do or information you would like to have access to which would really help you?
  • Which functions are most important to you?
  • Who do I know that experienced the softwares in operation?

At this stage it also worth talking to a bookkeeper or accountant to get their opinion on what would be good for you and your business.

You can then sign up to the free trials on the software and try them out yourself before deciding.

Step 3 – Plan implementation of new software and bookkeeping arrangements

Having decided which software you want to use, the next step is to answer the following key questions?

  1. When should I make the transition?  The best time to change your software is at the end of the financial year as it is much easier to do this then so if your year end is coming up, then this is a great time to do it.  If you need or want to make the transition mid financial year then that’s fine, just ensure that you pick a date that is from the start of a new VAT period.  For the purposes of Making Tax Digital, do it as early as you can so that you have time to get used to the software before the new requirements come in on 1st April 2019.
  1. Who is going to do the bookkeeping?  If you already have a bookkeeper or accountant doing this for you, then you need to ensure that they are able to use the software that you have chosen and have the expertise necessary to get your software set up for your business and to be used on-going.    If you going to do the bookkeeping yourself on a new software, then you may want to source some help to get your software set up and to access some training on the software so that you can use it correctly.   If you are currently not used to using a bookkeeping software and don’t want to do the bookkeeping going forward, then you may wish to talk to a bookkeeper or accountant about how they can help you. 

When you’ve answered these 2 questions, you can then create a plan for implementation with timescales against each stage, allowing plenty of time to get things in place before April 2019.

Step 4 – Set up new software

How long this takes and what is involved very much depends on the complexity of your business finances and how you want to use the software going forward.

You may choose to do this yourself using the software videos, guides and support or you may wish to ask a bookkeeper or accountant who specialises in the software to do this for you.

Setting up your software will include tasks such as;

  • Setting up your financial settings
  • Entering opening balances from previous year or accounting software
  • Tailoring the chart of accounts to meet your business needs and reporting requirements
  • Creating quotes/invoice templates/email templates
  • Creating customer and supplier records
  • Setting up default settings and rules to save time
  • Setting up bank accounts and bank feeds

Note that there is some free help out there with this.  For example, if you are currently using Sage or Quickbooks software and wish to move to Xero software, there is a company called ‘Movemybooks’ who will for free undertake a large part of the data transfer for you.  There may be other options out there too for other softwares.

Step 5 – Get training on the new software

There are some excellent videos and training tools available online to help you learn how to use the software.

However, we often find that business owners don’t have the time to necessarily spend working through these and just want someone to show or tell them what they need to do.  If this is the case, finding a bookkeeper or accountant that can show you exactly how to do your bookkeeping using your software is advisable. This way you will learn the most efficient ways to do things and also have confidence that what you are doing is correct.

So, having followed those 5 steps you will be ready and raring to go when Making Tax Digital comes in next April and you can start using the software.

What you can do after reading this guide?

Here are some immediate next steps for you;

  1. Do some further reading.  There is plenty of content on the HMRC website about Making Tax Digital requirements.
  2. Book a free 30 minute no obligation consultation with The Bookkeeping Department to help you work through what your options are and what you need to do.  Email and we will arrange a time to do this with you.
  3. Book into one of our free monthly webinars where we introduce and demonstrate Xero bookkeeping software which would enable you to see how the software works.  Xero is one of the softwares available which will be Making Tax Digital Compliant.  Here is the link to all of our events, including these free events.

We hope this blog has been a useful insight into Making Tax Digital.  We know that as a busy business owner this is just one of the many demands on your time and focus in your business this coming year.  So if we can help you in anyway, please contact us at The Bookkeeping Department and we will be pleased to chat with you.