There comes that time of year when you have to scramble around looking for all of your VAT receipts, making sure all your invoices are in date order and you have enough time allocated to file your returns.
Well, with the introduction of Making Tax Digital (MTD), these issues are now a thing of the past.
First rolled out in 2019, MTD now applies to all VAT-paying businesses with a turnover above the £85,000 threshold, and will extend to income and corporation tax in the near future.
Even though the changes to your annual routine can be a bit disorientating, there are several reasons why MTD is a great idea and will only benefit you and your business.
Join the digital revolution
Rolling with the times is nothing to be afraid of. With the switchover to digital, you’ll save yourself lots of storage space on cabinets filled to the brim with paperwork.
By uploading all of your necessary documents to the cloud, you’re ensuring you have a solid database of all the figures you’ll need for your annual returns in one place. This will streamline the process and save you a lot of time usually spent digging for invoices.
Digitising your bookkeeping, meanwhile, will help you keep track of tax dates, any repayments that may be owed and upcoming bills. As you will be legally required to use MTD-compatible software, you’re able to access your accounts and return paperwork anywhere in the world.
Mistakes can be costly at the best of times, but especially when it comes to your VAT returns and taxes.
Usually businesses find themselves rushing to meet the deadlines; this is when small mistakes can slip through the cracks.
In tax year 2015/16, over £3.5 billion was lost to the Treasury due to mistakes in VAT returns according to HMRC.
Conversely, MTD for VAT brought in an extra £195 million in the 2019/20 tax year. Now MTD has become the norm for your VAT returns, you never have to worry about overpaying or getting HMRC on your case about mistakes you may or may not have made.
Talking of deadlines, MTD software will remind you of all of the important dates for your returns so you can make sure all of the money you need to cover your VAT costs is ready to go.
This will become even more important when MTD for income tax self-assessment (MTD for ITSA) comes into effect in 2024, and corporation tax by 2026 at the earliest.
Another of the many benefits of MTD is the ability to fully utilise cloud-based accounting software.
If you use Xero or Quickbooks you can also give access to your accountants. This means both of you will have access to all of your financial information on the go, saving you time having to organise meetings and coordinate with your accounting team.
Instead of waiting to see your important tax information during your annual return, you will also be able to look at what you owe throughout the year and keep track of the figures.
The future of MTD
As mentioned, MTD for VAT is just the first step in the Government’s campaign to bring taxes into the modern age.
By April 2024, MTD will then be rolled out for self-assessments for the self-employed and for partnerships. This will also cover sole traders and private landlords with £10,000 or more of annual property income.
While this may seem daunting, the best thing to do is talk to your accountant now and get ahead of the process, thus making the transition even smoother.
There is currently an MTD ITSA pilot scheme in place for people to sign up to, which can be found here.
Lastly, corporation tax will come under the scope of MTD by April 2026 at the very earliest. An exact date is still being finalised in an HMRC consultation.
It’s likely a pilot scheme will be launched in the near future, similar to the pilot for MTD for ITSA.
As with everything in life, failing to prepare is preparing to fail.
By getting in touch with the accounting team at Mayflower, you will be making the first steps towards streamlining your tax returns and saving yourself a lot of hassle.
Contact us with any questions about MTD.