HMRC’s initiative to digitise the UK tax system continues. In the next phase of the rollout, a new batch of businesses will soon be required to comply with the rules around Making Tax Digital (MTD).
Since April 2019, VAT registered businesses with a taxable turnover exceeding £85k – the minimum threshold for compulsory registration, have had to be MTD compliant. But with effect from April 2022, MTD will be extended to include all VAT registered businesses. It means that even those businesses that are voluntarily registered and have sales revenue below the compulsory threshold must follow the MTD rules and keep their VAT records digitally.
April 2022 might still seem some way off, but if your business is not already MTD compliant, you need to take action now and begin transitioning so you’re ready to submit your first digital VAT return on time.
As long as the turnover of your business remains below the deregistration threshold for any rolling 12 month period , you do have the option to de-register. But if you chose to register voluntarily, you’re likely to have done so because it benefits you commercially. Perhaps the nature of your business makes it financially advantageous, or maybe registration helps lend credibility to your organisation.
Even if you do de-register ahead of the April 2022 deadline, you’ll only be delaying the inevitable. With effect from April 2023, self-employed businesses and landlords with annual business or property income above £10k will have to follow MTD rules for Income Tax anyway.
If, despite this, you decide you still want to de-register, you’ll need to take professional advice to check you won’t incur any costs by doing so.
Transitioning to Making Tax Digital
To make your business MTD compliant, you’ll need to use an accounting software package that connects with HMRC’s systems. If your business is still relying on paper-based record-keeping, spreadsheets or desktop solutions that aren’t supported by MTD, you must find an alternative, compatible solution and plan your transition process.
.Whichever option you choose, you need to allow plenty of time to set up a new system, integrate it with your online banking, populate it with customer and supplier data, and train your team to use it.
The benefits of going digital
Making your business MTD compliant is compulsory, but switching to a software-based, digital solution will bring many benefits. It will:
- Save you time: By automating your record-keeping, you’ll dramatically reduce the amount of time you spend calculating and submitting your VAT returns each quarter.
- Reduce errors: Automation reduces the likelihood of human errors, which can occur when information must be input multiple times.
- Increase security: By keeping your records backed up in digital format (in the cloud if you opt for a cloud-based solution), you ensure they’re protected against all threats, including technical failure and natural disaster.
- Reduce paperwork and filing: HMRC requires you to keep your VAT records for at least six years. Even for a business with limited transactions, this means a lot of paper and a lot of files. Keeping records in digital format will free up space!
If your business is VAT registered and you’re not already using an MTD compatible accounting system, the clock is ticking. But don’t worry, Inca can provide help and advice and recommend the most appropriate solution for your business. We have access to introductory and long-term discounts for all major products. from as little as £5 + VAT per month.
And if you’re interested in finding out about working smarter, we can recommend software that will integrate with your accounting system, saving you time and helping you work more efficiently!