Editor | 30 October 2018
Will Making Tax Digital Apply to My Business?

Will Making Tax Digital Apply to My Business?

 

Making Tax Digital is the latest HMRC campaign to modernise tax collection and make life easier for business owners.

The first raft of changes, which affects VAT payers, will come into force on 1 April 2019. But a survey from the British Chambers of Commerce reveals that 24% of firms have never even heard of the measure.

Making Tax Digital for VAT will apply to all VAT-registered businesses that have a taxable income over the VAT threshold of £85,000.

These businesses will be required to use the Making Tax Digital service to keep digital records digitally from April next year, unless they are in a small minority of businesses with more complex requirements.

Businesses with more complex requirements, including trusts and some not-for-profits, get a six-month deferral to October 2019.

Key changes with Making Tax Digital

There are a number of key changes which qualifying businesses need to be aware of.

Digital record keeping 

Most VAT-registered businesses will have to ditch manual record-keeping in favour of digital records. These digital records must be updated and maintained in approved software which can link directly with HMRC.

Cloud-based software packages FreeAgent and Xero are both approved for Making Tax Digital. These software packages make record keeping quicker, easier and more accurate for business owners.

VAT return submission

VAT returns must also be submitted to HMRC by compatible software. This will usually be the same software used for digital record keeping. Businesses will no longer be able to do this manually through the ‘Government Gateway’.

Self-employed can join HMRC pilot 

Although most self-employed people will not be required to participate in Making Tax Digital right away (unless they are VAT registered and earn over the VAT-threshold), self-employed workers and landlords can volunteer to use the software to send income tax updates instead of filling out a self-assessment

There are a few advantages of doing this. First, you will have to do it eventually, so this is a good way of getting ahead of the curve. You will also be able to see an estimate of how much tax you might owe as you go, instead of waiting until the end of the tax year. 

To participate, you will need to use approved software such as FreeAgent and use it to keep a record of your income and expenses.

Every three months, you will us ether software to send a summary of income and expenses to HMRC and get an estimate of how much tax you might owe.

At the end of the year you will be able to send a final report to confirm your income and expenses. At this stage, you will be able to claim for any allowances are reliefs before seeing your final tax calculation for the year.

For more information on the self-employed pilot scheme, visit www.gov.uk/guidance/use-software-to-send-income-tax-updates.

For help with Making Tax Digital, speak to a member of the team today. Call: 0808 281 0303.