Making Tax Digital
What is Making Tax Digital?
Making Tax Digital is a compliance process that HM Revenue and Customs are in the process of implementing. Its purpose is to make the UK the most digitally advanced tax administration in the world. It is a huge project that will take many years to be delivered in full. The first stage starts on 1 April 2019.
Their ultimate goal is to significantly reduce the ‘Tax Gap’. The ‘tax gap’ is the difference between the amount of tax that should, in theory, be paid to HMRC, and what is actually paid. According to the Tax Gap Publication, for 2016/17 it was estimated at £33bn. Only an estimated £1.7bn of that relates to tax avoidance.
One of the questions I hear the most is “why is HMRC not pursuing large corporations rather than us little fish”. An estimated £21bn of the tax gap relates to individuals, small businesses and medium sized businesses. Compared to £5.4bn relating to criminals and £7bn to large businesses.
The purpose of making tax digital is to make the system more efficient and reduce the risk of error. In view of this, submissions must be made via digital software.
Who is affected?
The first stage of Making Tax Digital affects businesses with a turnover above the VAT threshold. This is currently £85,000.
If, in a rolling 12 month period your business crept above the VAT threshold but has since fallen back below, you must still take part.
There are exemptions available for those who are bound by religious reasons, insolvency or practicable reasons. These include age, disability and remoteness of location.
The rules apply to the VAT period starting on or after 1 April 2019.
Further stages are due to come into effect from April 2020 onward. These are likely to include corporation tax and income tax submissions.
What are the requirements?
Records must be kept for 6 years and must include; the date, value and VAT rate applicable for each transaction. In the case of shops where you may have thousands of transactions per day, the gross daily takings is acceptable.
You must keep and preserve the records in a digital form.
VAT returns must be created and provided directly from digital records.
The software you use must be capable of submitting and receiving information from HMRC via the API platform.
How can Plymouth Business Services help?
First of all, if you aren’t sure whether Making Tax Digital applies to you at the moment, get in touch.
We can look at your current systems and recommend changes where necessary. If changes are recommended, we can perform the setup and migration for you. Once fully established, we can train you and your staff on the new software.
If you don’t feel comfortable using digital software moving forwards, we can provide a quote for the ongoing bookkeeping.
Why would I want to change systems?
Aside from the obvious compliance issue, the cloud can bring a whole host of benefits.
Plymouth Business Services is fully on the cloud as are all of our clients!
We chose the cloud, not purely for compliance reasons, but for the many benefits it brings…
You can store data online so you can access it from anywhere, at any time on any device. All you need is internet access to view, edit or collaborate on work. Data is available in real time. Data is safer as it is automatically backed up, stored and encrypted with industry standard encryption. Two step authentication enhances that security.
Traditional software is rarely kept up to date since it can be expensive, difficult and time consuming to upgrade. The data stored on it can be significantly out of date and many businesses would previously perform monthly bookkeeping updates rather than daily. It only works on one computer and has to be transferred via USB or other un-secure and unreliable formats. Only one person has access at any given time. We tend to find that most people start out with good intentions of taking regular back-ups but the novelty soon fades. Customer support can also be expensive and slow.
If you want to know what benefits the cloud could bring to your business, book a free consultation with Plymouth Business Services. There is no obligation and during the consultation we may give many free hints and tips.
If you want to read more about the Tax Gap you can do so here.