Are You Ready for the UK’s Making Tax Digital Roll-Out?

Tax doesn’t have to be taxing… that’s what we’re told each and every year, but unless you have professional and experienced small business accountants in Hounslow behind you, helping you through the process, it can actually be a very arduous and complicated task.

And if you get it wrong, you could find yourself hit with fines as a result, which is an added layer of stress that nobody needs.

It does seem as though the government is aware that tax administration can be tricky, however, since it’s intent on introducing fundamental changes to the way in which the system works.

Part of this included the Making Tax Digital scheme, intended to make it easier for both businesses and individuals to get their tax right from the outset and keep on top of their affairs far easier.

At Its Core, It Is A Good Idea

The idea behind digitalisation is to make the process more effective and efficient, so it’s easier for taxpayers to get it right first time.

All VAT registered companies that have a taxable turnover above the VAT threshold (currently £85,000) now have to use the Making Tax Digital service to keep digital records and use software to submit tax returns for periods that started on after April 1st 2019. If you have taxable turnover below the threshold, you can still sign up for the service voluntarily.

As with anything, there are some exceptions to this new rule… those VAT registered companies that have more complex requirements won’t have to do this just yet and mandation has been delayed until October 1st this year so there’s enough time for HMRC to test the service in a pilot first.

HMRC’s latest tax gap report for 2016-2017 show that the gap is now estimated to be £33 billion, which is 5.7 per cent of tax liabilities. The tax gap is the difference between the amount that should be paid to HMRC and what is actually paid.

This arises for numerous reasons, whether that’s down to simple tax calculation errors or not taking enough care when submitting returns. Evasion, legal interpretation, avoidance and criminal attacks can also lead to a tax gap. There has been a long-term drop in the overall gap, however, down from the 7.3 per cent seen in 2005-2006 to 5.7 per cent now.

Fixing the Costly Mistakes

Avoidable mistakes apparently cost the Exchequer more than £9 billion a year and it’s hoped that digitalisation will improve accuracy in order to reduce the amount of tax lost due to avoidable errors.

The good news is that in order to help businesses make the transition to digital accounting the government won’t be mandating Making Tax Digital for new taxes or businesses in 2020. And the process won’t be mandated for taxes other than VAT until at least April next year, as well.

If at any point after April 1st 2019 your taxable turnover drops below the VAT registration threshold, you will still be required to carry on keeping digital records, sending your VAT returns in using compatible software.

Businesses with a taxable turnover that is below the threshold will still be able to sign up for the digital service and, in fact, HMRC is now encouraging companies to do so in order to take advantage of the benefits available. You’re also able to sign up for the digital service for income tax to help you streamline your operations even further.

What Digital Records Do I Need?

In terms of the digital records that you’ll need to keep, you’ll need to include the time of supply, the value of the supply and the rate of VAT charged. Also include information about your company, including name and principal address, VAT registration number and the details of any VAT accounting schemes you may be using.

What you need to do now is make sure that the software you’re using is compatible so you can submit your returns and keep records of sales and purchases. You need to have the correct software before you sign up to the service, so make sure you ask your provider if they intend to make the software they use compatible.

You can keep your digital records in a range of compatible formats and they don’t have to all be in the same place or on just a single piece of software. HMRC is giving businesses until March 31st 2020 to ensure that there are digital links between software products being used and until then you can use cut and paste to transfer information.

Current Issues

Of course, as with anything, it seems there have been a few teething problems with the new service. According to The Register, some software vendors have lodged complaints that a vital API that went live a few days ago as part of the new reforms is returning false data, an issue that wasn’t encountered during the pilot stages.

It means that some users are now unsure as to whether their tax returns have been filed properly and whether they’ll be fined for late filing as a result. HMRC did send the news source a statement, however, that read: “As we did during the pilot, HMRC is continuing to work closely with developers to ensure our service is smooth and that teething problems get resolved quickly.”

The main benefits of the Making Tax Digital rollout

The Making Tax Digital initiative is the perfect opportunity for brands of all shapes and sizes to properly assess just how they’ve been managing their finances, making any necessary changes to really streamline proceedings and make it is simple as possible.

Digitalisation could really transform the way in which you work and while you can make use of bridging software right now, if you review your operations and make good use of a finance management solution in the cloud, you’ll likely reap greater benefits over the long term.

The Value of Digital Records

Keeping digital records also means that there’s less room for error, which means your company is better able to expand and hit all your key performance indicators. You’ll also likely find that it’s a far more transparent way of working, so you can track everything you need to easily.

You might also find that your revenue increases thanks to more efficient management of cash flow, so it’s certainly worth the rollout for that alone!

And don’t forget that by going paperless and keeping everything on file in the digital arena, you’ll be able to access your taxes and information anywhere you want, at any time. You’ll likely find in the future that you won’t have to wait until year end to find out how much you owe, which can only be a good development for businesses.

Top tips for cyber security and Making Tax Digital

With growing numbers starting to keep digital accounting records, there is greater opportunity for cyber criminals to target taxpayers, so it’s essential that you know what you’re doing where cyber security is concerned and that you’re taking all the necessary steps to protect you and your business.

When receiving emails and other correspondence from HMRC, be vigilant. It is wise to be suspicious as a matter of course. Similarly, don’t take emails and so on at face value. – always be sure before clicking links and providing personal information.

Use Strong Passwords

Make sure passwords are strong, changed regularly and not shared – even among coworkers. Always use different passwords for different accounts and take care when providing administrative access rights.

When looking over emails, keep an eye out for incorrect logos, requests for personal or sensitive details, incorrect spelling and so on. Before you click links, hover your mouse over them so you can see where they’re actually linking to.

Always keep your systems up to date and install any and all updates when instructed to, as this will help to ensure your network systems are left vulnerable. Antivirus software should also be installed where appropriate.

The Importance of Staff Training

Staff training is also a must so that all your employees know exactly what the risks are, what their responsibilities are and what they need to do in order to protect sensitive data. Internal breaches are a common occurrence, so regular training is an absolute necessity in order to protect you and your business against hacking and cyber criminal activity.

The best way to avoid and prevent cyber breaches is to ensure that all members of staff know how they could potentially be targeted. Stress the importance of compliance with set policies with regards to the use of the internet and emails.

This should be done at the very beginning when you have new starters coming onto the team, with all employees then kept up to date about all the latest threats – important since these do evolve over time.