From April 2019, every VAT-registered business that has a turnover above the VAT threshold will have to comply with something called Making Tax Digital (MTD).
If you haven’t heard of MTD yet, don’t panic. And, if you’re already using a modern accounting software platform to keep track of your social enterprise’s finances, you have little to worry about!
However, MTD is designed to modernise the way businesses deal with VAT, and with research suggesting that around 65% of small businesses don’t use accounting software, there’s clearly a need for greater awareness of the new rules.
If you fall into that bracket as a social enterprise, here’s five things you need to know about MTD:
1. Why is it happening?
Making Tax Digital is part of the government’s effort to simplify tax affairs for businesses. Designed to make the process of reporting to HMRC easier, MTD relies on businesses adopting modern accounting software platforms and moving away from paper-based records.
In theory, it should reduce administrative overheads and make it much harder to make mistakes.
2. When will it be applicable?
There’s no ambiguity around the implementation of MTD. The government has made it clear that from April 2019, all VAT registered businesses will need to comply with the new rules regarding digital record keeping.
From that date, VAT information will need to be submitted to HMRC using third-party software. The deadline for corporation tax submissions is April 2020.
3. How will it change my VAT records?
Under MTD, you’ll need to implement accounting software that is compatible with HMRC’s systems, thus enabling you to automatically submit VAT returns.
If you currently use spreadsheets or paper records for VAT, these will no longer be acceptable once MTD comes into effect.
If you haven’t used an accounting app before, there will of course be a bit of a learning curve, but modern systems are surprisingly user friendly, web-based and can be accessed on a number of devices for ultra convenience.
4. Will it change how we report VAT?
Yes – completely.
Whoever currently submits your VAT return (be it yourself or an accountant), will need to provide HMRC with reports every quarter rather than every year. And, although that sounds like more work, by using the digital tools required for MTD, the process is actually far simpler.
5. Will this benefit my social enterprise?
Yes, it will!
Firstly, MTD will ensure you pay your VAT return directly to HMRC via the most secure route possible, and quickly. You’ll also benefit significantly from the accounting software you use, which will provide deep insight into all of your social enterprise’s finances, enabling you to create more realistic budgets and plan for the future.
Digital tools are designed to make us more productive, efficient and give back time that might otherwise be lost to manually updating records. Making Tax Digital may sound like an unnecessary burden, but once you’ve got over the initial learning curve, it’ll revolutionise the VAT side of your business.
Making Tax Digital isn’t something you can ignore as a social enterprise, but it will likely make the finance arm of your operation far more efficient in the long run and reduce accounting errors.
We recommend speaking to a qualified accountant for further advice on MTD and to find out which accounting platform will best suit your social enterprise.