Are you ready for the UK’s biggest tax shake-up for a generation?

  • Daniel Domonkos Ilosfai
  • Metaka Mfm
  • Clínicas OralDents
  • Darragh Toal
  • Shun Kitagawa

Making Tax Digital (MTD), the UK government’s initiative to “end the tax return” and get small businesses reporting more regularly to HMRC through accounting software, is gaining momentum. This massive shift in the tax system will undoubtedly have an impact on your business, but as the legislation is still to be finalised you might be unsure how to prepare.

To help you come up with a plan, here are four simple steps you can take based on what we know so far about MTD to ensure your business is ready.

1. Check if you’re exempt

A small minority of businesses will be exempt from digital record-keeping requirements and you should find out if this includes you. The exemptions (which are the same as those that already apply to electronic VAT returns) include:
  • membership of a religious society or order with beliefs that are incompatible with the use of electronic communications
  • being subject to an insolvency procedure
  • disability, age, remoteness of location or any other reason that the MTD commissioners accept as valid grounds not to use an electronic return system
If you are refused an exemption you will have a right of appeal, however details of how to appeal are yet to be finalised. If you’re eligible for exemption, HMRC has confirmed that you can still choose to take part in MTD if you prefer to work digitally.

2. Work out if you need to comply by April 2019

If your business’s annual VATable sales are above the registration threshold (currently £85,000 turnover) by April 2019, and your business is registered for VAT, by the start of the next tax year you’ll be required to:
  • keep digital records for VAT purposes
  • provide VAT return information through MTD-compatible software
If your business’s annual turnover falls below the VAT threshold following the MTD for VAT start date, HMRC has confirmed that you’ll continue to report VAT figures digitally for as long as your business is VAT registered.
Be aware that if your accounting year is different to the tax year, you might find it a lot easier to switch to MTD compliant software as soon as you can.

3. Find an accounting software solution that’s right for your business

If you don’t yet know what accounting software you’ll use to comply with MTD, it’s time to start looking. According, to HMRC, “functional compatible” software should be able to:
  • keep records in a digital form according to the regulations
  • preserve digital records in a digital form for the required amount of time (this is currently up to six years).
  • create a VAT return from stored records and share this information with HMRC
  • provide HMRC with VAT data on a voluntary basis
  • receive information from HMRC
If you’re unsure about the compatibility of a software package that you have in mind then you can always ask the software provider for clarification.

4. Ask your accountant

Most accountants in the UK are working closely with accounting software providers like FreeAgent so they can provide a better service to their clients. The accountancy profession has been busy preparing for MTD for the last couple of years and your accountant should be able to give you advice on what you need to do to prepare.
If you don’t have an accountant yet, take a look on the FreeAgent directory of UK accountants to find your perfect match.

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About the author - Emily Coltman FCA

Emily Coltman is chief accountant at FreeAgent, the online accounting software specifically designed for freelancers, contractors and micro-businesses, covering everything from invoicing to tax.