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What do I need to do for Making Tax Digital?

The Wirral is one of the UK boroughs right at the heart of the tech revolution, boasting cutting-edge companies of its own while also being close to the city of Liverpool, which is home to the Baltic Triangle tech cluster. This means that firms based in the area are well placed to adapt to the major tax system change that is Making Tax Digital. It will eventually revolutionise the process of completing a tax return, but what do you need to do to be ready for it?

What is Making Tax Digital?

Making Tax Digital is a reform of the tax system in the UK that will require the owners of businesses and freelance contractors to submit their returns online. While you may think that you already file an online tax return, Making Tax Digital is completely different to the standard online self-assessment that so many are used to completing and it will be necessary for you to use software that is compatible with the website HMRC has created for it. HMRC announced the plans to introduce it four years ago, but the first phase of the rollout only took effect from April 2019. So what exactly is expected of you?

Find out if the initial stage applies to you

Although Making Tax Digital has already started, the first phase will not impact all businesses in the UK. It is called Making Tax Digital for VAT and, as you would expect, it applies solely to those companies or individuals who have an annual turnover higher than the threshold for VAT. That’s currently £85,000 per year, so the first thing that you need to do is to determine if your annual turnover exceeds that amount, because if it does you will need to register at the gov.uk website. Making Tax Digital for VAT is compulsory for all VAT-eligible firms, whether they are based in the South or in Northern areas like Liverpool, Manchester or Birkenhead.

Get the necessary software

Before you register for Making Tax Digital for VAT, it is best to make sure that you have the software necessary to complete and submit your VAT return digitally. Whereas before it was possible to simply use the HMRC website to input the VAT totals, which was the method used by 71% of business owners, now you must use a digital accountancy app or software package compatible with Making Tax Digital to record your VAT figures and upload your return to the new system.

HMRC is not providing compatible software at the moment, so this is an expense that businesses are expected to meet for themselves, with the average cost having been estimated at £280 per business. This sum includes the cost of purchasing the software, as well as the costs of training any finance staff you may have in how to use it properly. The software provided by Xero is one example that will be compatible with HMRC’s system.

When it comes to evaluating the overall costs and risks of preparing for the change, some businesses may decide that simply paying a professional accountant in Birkenhead or wherever else they are based proves to be the most efficient option in the long term.

Register at the website

Once you have bought the software needed to keep digital VAT records, the next thing that you will need to do is register so that you can submit your return in time. Either you or your accountant must register your business for Making Tax Digital for VAT at the gov.uk website, but the deadline for doing so varies depending on whether you pay your VAT bill by direct debit or not.

If you do pay it via a direct debit, you will need to register for the new system a minimum of seven working days ahead of the VAT being due, or five working days after it is due. It is important to wait until after the last of your previous direct debits has been taken from your account before you register.

On the other hand, if your VAT bill is not paid by direct debit, you should register at the Making Tax Digital for VAT site a minimum of 72 hours ahead of the deadline for submitting your return.

What if Making Tax Digital for VAT does not apply to you?

A lot of UK businesses will not be among those required to comply with the first stage of Making Tax Digital, but if that is the case for you, it still doesn’t mean you should just ignore it. Eventually, it is going to be rolled out to all firms in the UK so it can be worth planning ahead for that by setting aside money for software and professional advice when you need it.

The next stage in the rollout of this new system, Making Tax Digital for Income Tax, is being piloted now and some business owners are taking part in this by purchasing the software and starting to keep digital income tax records. This is a way that business owners can help to ensure that service meets their needs before it becomes compulsory, as well as a way that they can be prepared in advance for that happening and minimise the upheaval that it will cause to their business practices. With the Wirral being known for tech innovators like Bromborough firm MSoft, it is very possible that companies from that area will be among those helping to refine the next stage of this digital tax revolution

In conclusion

This is a guideline to the measures you need to take to make sure that your business is in compliance with the Making Tax Digital for VAT reforms. If you follow these steps you should be able to avoid the financial headaches of non-compliance, but you should also consider seeking out the advice of a professional accountancy service in Birkenhead.

Why not speak to Wainwrights and discover how we can help you navigate the new system?

Posted by Peter
July 25, 2019
Making Tax Digital

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