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How to Prepare for Making Tax Digital – A Practical Guide

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Making Tax Digital is the new government programme that will come into force in April 2019. It requires all VAT registered businesses with a turnover above £85,000 to compile and submit their VAT returns online through their accounting software.

making-tax-digitalWhat does Making Tax Digital really mean for businesses?

In essence, businesses will need to use software to record all VAT invoices and receipts, as well as automating VAT submissions at the end of each VAT period. They will no longer be able to manually submit their VAT returns through the HMRC gateway.

Making tax digital has three important distinctions:

  1. Bank transactions and other financial information will flow automatically into a digital tax account
  2. Submissions will need to be made at least once per quarter
  3. Submissions will need to be filed using some form of software (you’ll need to use an app that is integrated to your digital tax account).

The idea behind this is to make the process easier and error free, thereby reducing the amount of revenue lost by HMRC each year. Businesses are also set to benefit as outlined within All You Need To Know About Making Tax Digital.

MTD will firstly apply to VAT only. Other taxes however are expected to be included in the second phase after April 2020.

Non-VAT registered businesses are not currently required to move to digital record-keeping. They may however still wish to do so as this is inevitably the direction in which the UK tax system is moving.

Next Steps for Businesses already using Online Software

For companies already using online accounting software to keep digital records, compliance with Making Tax Digital should be relatively straightforward. Reputable software vendors are aware of the impending changes and are well placed to advise on the most suitable way forward.

This may still require a software update unless you are using the latest version. While this may sound simple, if you use bespoke features and reports, the upgrade process will be more involved. We therefore strongly recommend upgrading your software as soon as possible to ensure your business is fully prepared.

Once your software is up to date, the next step is to install the MTD update. These releases are likely to be available in early 2019 depending on the software package.

Next Steps for Businesses using Manual Processes

For companies using manual processes, such as spreadsheets, more significant change is required. If you wish to continue using spreadsheets, you will need to make sure they can digitally submit data to HMRC. This is done by using bridging software. Whilst HMRC has committed to providing an app, it is difficult to know what this will look like presently.

To be better prepared and future proof your business, we recommend adopting MTD-enabled software. To comply with Making Tax Digital, the software must be able to:

  • Keep records in digital form
  • Preserve these digital records in a digital form
  • Create a VAT return from these digital records, digitally sending this information direct to HMRC
  • Receive information from HMRC regarding business compliance with MTD regulations and obligations via the Application Programming Interface (API)

Accounting solutions can provide stronger business insights and better financial control, therefore should be considered an opportunity. Time is of the essence however as the new system will need to selected, installed and up-and-running by April 2019.

Software Specifics

  • Pegasus Opera 3: Opera 3 will be compliant and the MTD module is expected for release in early 2019. We recommend familiarising yourself with Opera 3’s current functionality of VAT 100 submissions as these are likely to be a core component of MTD.
  • Pegasus Opera 2: Opera 2 will not be MTD compliant so we strongly recommend Upgrading to Pegasus Opera 3.
  • Pegasus Capital Gold: An MTD update will be available and is expected to be available in early 2019.
  • Dynamics 365 Business Central: Microsoft have stated that Dynamics 365 Business Central will be compliant by April 2019.
  • Dynamics GP: Microsoft have advised that MTD updates will be included for Dynamics GP 2016 and GP 2018 for the VAT 100 Return and VAT Daybook, in the Year End Update (due December 2018).
  • Dynamics NAV: MTD updates will be available for Microsoft Dynamics NAV 2016, 2017 and 2018. If you are using an older version, an upgrade will be required.

Conclusion

Making Tax Digital is a mandatory requirement that will affect virtually every business in the UK. As we head rapidly towards the 1st April 2019 deadline, businesses need to act now.

This shake-up of the tax system is set to revolutionise how businesses operate, bringing processes in line with the digital economy. With more changes inevitable over the coming years, making sure you have the right systems in place now is invaluable.

Contact us to discuss your compliance, to upgrade your software or book your MTD module update.


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