We all know it is coming every year. Completing our tax returns, whether we are self-employed or a registered business it is perhaps the least enjoyable job of the year.
It is also an incredibly important one, too. To run a successful business you need to know about the money. Or at the very least have an accountant who is able to tell you how well your money is working so that you don’t get a nasty surprise at the end of the year.
The government introduced Making Tax Digital (MTD) to break this annual payment down into smaller chunks. To do this, they will eventually need all businesses to sign up to one of their suppliers and submit a tax return on a quarterly basis.
These accountancy programmes link up between your account and your tax account to keep you on track with your tax return. This means you have a better idea of what you owe throughout the year.
Who is eligible?
At the moment, if you are a VAT registered business and have a turnover of more than £85,000 you need to sign up to MTD now.
There are some exemptions but you will have received a letter from HMRC if you fall into these categories. No letter? You can assume you are not exempt.
From October 2019, if you are VAT registered and a not-for-profit, trust, or public entity then you will need to sign up for MTD.
How does it work?
Ideally, HMRC wants you to sign up to one of the software partners to file your returns. This means that as you complete your invoices and expenses, the system will be able to communicate with HMRC and keep a track of what is owed.
There is a list of software providers here.
If your turnover drops below £85,000 then you will still need to send your return digitally. Unless you de-register for VAT and then you no longer need to be signed up.
The future of tax returns
MTD only applies to those businesses who are VAT registered and have a turnover above the threshold. But that doesn’t mean you can ignore it if you are not VAT registered.
This is just the start of MTD. By next year, everyone who needs to complete a self-assessment will have to be signed up.
It means you need to keep on top of your accounts regardless of whether or not you are VAT registered. For those who have been using a system of spreadsheets and a shoebox of receipts, getting into a good habit now will save you a lot of stress when you have to start filing on a regular basis.
While accountancy software can do a lot of the leg work for you, there is nothing quite like have a good finance person who really understands these changes.