Clive Owen LLP, chartered accountants and business advisers with offices in Darlington, York and Durham, is warning businesses to ensure that they are preparing for the implementation of the new Making Tax Digital (MTD) initiative.
From April 2019, less than 12 months away, businesses with turnover in excess of the VAT threshold (currently £85,000) will be required to keep their VAT records on a digital system and submit their VAT returns digitally, directly from either spreadsheets or accounting software which is MTD compatible. Other taxes, including income tax and corporation tax, are likely to come under the system from April 2020.
One of the main reasons for the MTD project is to reduce the amount of tax lost through human errors and ensure more accurate tax information is submitted. It will also eventually enable business owners to have a real-time picture of their finances, and an awareness of the amount of tax owed.
Lee Watson, Tax Director at Clive Owen LLP, said: “HMRC believes that MTD will boost public finances. According to the latest figures, the tax gap, which is the difference between the amount paid and the amount HMRC believe is payable, is in the billions of pounds and clearly, it wishes to bring in as much money to the coffers as possible. HMRC believes that MTD will significantly reduce the tax gap, so businesses should be prepared for the MTD changes as they won’t be shelved.
“The rates of tax won’t go up but the reporting will be more accurate so those under-declaring, intentionally or not, will pay more but there may also be people who will pay less tax because their records are more accurate.
“However, MTD will bring many advantages for those who are properly prepared, particularly those who will embrace one of the cloud accounting solutions.
“A cloud accounting system can be accessed from anywhere with an internet connection and the business will always be on the latest version. Most of the systems will link with business bank accounts, which means that the business owner can make more informed financial decisions based upon real-time financial information.
“The technology is evolving very quickly and it’s important that all businesses find a cloud accounting software platform that meets their need and is compatible with MTD. Those still using handwritten ledgers or receipts in a box will need to digitise their systems, but with the right advice and support, they will wonder why they didn’t do it years ago!
“HMRC has advised that there will be alternatives for cases where the MTD interface cannot be used, for example in very rural areas with limited broadband. However, tax is going digital and now is the time to start getting ready.”