It's been a long time coming, but as of April 2019, the much-discussed Making Tax Digital initiative will be finally come into effect. In case you aren't quite clear on what that involves, don't feel bad – there are still plenty of businesses that will be affected but are still unaware of the full details.
In simple terms, the Making Tax Digital initiative means that any VAT-registered business that has a turnover of £85,000 or more will need to submit their VAT returns digitally through the Making Tax Digital (MTD) platform. Even if you're below the threshold, HMRC is encouraging every business to begin filing using this method as soon as possible before it becomes compulsory.
In coming years, all businesses will eventually be required to make their VAT filings this way. Given the advantages of handling these requirements electronically, in the long run, all business filings are likely to be submitted digitally.
Currently, only 89% of VAT filings are made without the benefits of software, which can be a major source of inefficiency for many small businesses due to the potential for errors etc. Filing digitally will require adopting compatible accounting software, so evaluating your options and making the switch as soon as possible will make the transition easier.
For many smaller businesses, the idea of bothering with accounting software seems unnecessary and spreadsheets are often preferred. It's still possible to keep using spreadsheets as the data can be transferred via bridging software into the MTD platform. For the first 12 months HMRC will allow you to manually enter data into the bridging software. However, from April 2020, the process will need to be automated from the spreadsheet into the bridging software in order to input your VAT calculations. Bridging software options are currently under development, so be sure to keep an eye on developments in this area to ensure you'll be ready.
Ideally, the new process will make VAT filings much simpler by either filing through compatible accounting software or bridging software, but there will probably be some bumps in the road during the initial rollout. Taking advantage of signing up early will help your business get used to the new requirements, even if you're not required to use the MTD platform yet.
Switching to digital record keeping can seem like a difficult task when you're already busy with the day-to-day issues of running a business, but making the change is worth it. Digital records are faster, more efficient, and less prone to mistakes. As with most financial matters related to your business, it's best to discuss the upcoming changes with a qualified accountant to see how this will affect your business. Hopefully, the MTD rollout will be smooth and trouble-free, but only time will tell.
