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Making Tax Digital is a new initiative that will alter how your business records and submits its taxes to HMRC. These changes will start taking effect by April 2019, meaning your business should act now to ensure it’s prepared.
This article seeks to explain what Making Tax Digital software will mean to you and your firm and answer any queries which you may have about this law:
What is Making Tax Digital?
Making Tax Digital is a scheme by the UK government to make it easier for people and businesses to manage their taxes. The first official changes of the new initiative take place on 1st April 2019 and are known as Making Tax Digital for VAT.
All companies with a turnover beyond the VAT threshold will be required to submit their tax returns digitally. This current VAT threshold stands at £85,000 and, for those affected, companies will no longer be able to file their profits through the usual HMRC’s government gateway.
What’s the Aim of Making Tax Digital?
HMRC’s original goal was to transform the tax system by the year 2020, is your business ready for the changes? The proposed plan seeks to introduce digital record-keeping whilst also offering quarterly updates for self-employment, businesses, landlords, corporation tax and VAT.
The initial phased implementation was set for the 2018-19 and 2020-21 tax years. However, these were revised and delayed until April 2019. MTD for VAT will be the first area of the new initiative to come to fruition this year.
What Does the Law Mean for Your Business?
If you are registered for VAT and meet the require threshold then you’ll need to move to digitalised record-keeping. Meaning you’ll have to start using an MTD-compatible software to keep all of your financial receipts and invoices.
However, if you’re not registered for VAT or fall below the £85,000 threshold, then this scheme is optional. Businesses that are VAT registered will still get updated income tax estimates at their favoured time, helping them to plan their cash flows.
If you own a business and have a VAT number, then it’s advised to start preparing how to get the best software to record your tax data. The implementation date of this software is on 1st April 2019. Ensure that you have your software in place before then. In this way, your accounting team will be able to familiarise themselves with the system to minimise errors.
Frequently Asked Questions
- What Happens if My Business Goes Over the VAT Threshold Temporarily
One of the questions many smaller businesses are asking is: what happens if your company isn’t registered for VAT and it exceeds the limit? Well, at this point, you’ll need to comply with the requirements of the new MTD for VAT law. If your income then falls below the threshold, you’ll still need to comply – however, if you deregister from the VAT system you won’t need to continue following these rules.
- Are There Any Exemptions From This Law?
The HMRC VAT notice gives several examples of exemptions to their listed categories of people and businesses, including:
- Businesses who are facing an insolvency procedure
- If it is not possible for you to submit returns due to age, disability or any other eligible reason
- Your enterprise is run by members of a religious group whose beliefs aren’t compatible with the requirements of this law (for example religions who forbid the use of digital technology)