HMRC Making Tax Digital: What's all the Fuss About?

I thought I would provide an update on HMRC Making Tax Digital (MTD) and where we are in our journey.

We as a firm have a duty to keep all our clients up-to-date with legislative changes that will affect them and try, where possible, to help them with the transition. From my experience over the last few months, it is clear that businesses are still unaware of the enormous changes that are coming over the next two years, and come to that, the same applies to accountants, especially where they are not comfortable with new technology.

HMRC Making Tax Digital

Thankfully HMRC has watered down its original plans, which is enabling us to deal with the change in a structured manor that will be easier for us to implement. For those businesses already using a cloud based accounting system like Xero, they will not be affected by any changes until April 2020, when they will have to submit quarterly accounts information plus an annual tax return. It was interesting to hear at a recent event that HMRC will not be interrogating the quarterly information. Instead HMRC will rely on the annual accounts submitted with the tax return as a means to review the accuracy of the tax being declared. In light of this, you might be wondering why HMRC is asking businesses to submit quarterly information? Good question. HMRC's response is that they are helping businesses be aware of their tax liabilities and how the business is performing on a more regular basis, rather than annually. This is very commendable, but I’m not sure whether smaller businesses are going to appreciate the additional burden of maintaining their records digitally, especially if they are not too confident with IT.

• How will HMRC Making Tax Digital Affect Your Business

Not currently using a cloud based system?

For those businesses who are not using a cloud based system to file VAT returns, they will need to be ready to change sooner rather than later as from April 2019 (which is only 18 months away) businesses must submit their VAT returns via their bookkeeping system as HMRC will be turning off the ability to file via their gateway. These businesses will need the support of their accountant to make the transition. To help our clients in this process we have implemented a dedicated cloud team who train our clients and help them to choose an option that is within their budget and capabilities. We have already supported clients with bespoke training, showing them the benefits they can get from using a cloud system, such as real time financial information, improving their internal systems by utilising the vast array of cloud based plug ins and, most importantly, improving their cashflow. We are also able to support businesses by offering a compete outsourcing service to enable the owner to do what they are good at, rather than being bogged down with admin duties.

So what if you are using a desktop based bookkeeping system?

Well, it’s not all bad news as suppliers like sage have confirmed that their latest releases will have the facility to submit the VAT return online, but why would you want to watch TV on a black and white set when you can watch it on a flat screen colour HD TV for less money? It’s also going to be very interesting over the next few years as all the banks are opening up their API’s under PSD2,  which will enable you to make payments directly within Xero without having to duplicate the work in the banking system. So it makes sense to review your desktop system now and move to Xero to future proof your business. This way you can benefit from being able to run your finances remotely, from any device and being at the forefront of the technological revolution.

• How we helped our client

We are helping our clients get compliant for HMRC Making Tax Digital. We are doing this by sitting with them (at no extra cost) to show them the benefits of moving to the cloud and being in control of their finances. If you want to be ahead of your competitors and be MTD compliant then contact lee manning at lee.manning@raffingers.co.uk.