Cloud Accounting Businesses

Making Tax Digital for Business

VAT registered businesses with a turnover over the VAT threshold (£85,000) will be required to submit their VAT returns via digital records for VAT periods starting after 1 April 2019.

Timeline

The first step to Making Tax Digital will see the requirement from 1 April 2019 for all VAT registered businesses with turnover in excess of the VAT threshold to submit their VAT information to HMRC through Making Tax Digital software. HMRC have confirmed that they will not be offering their own free digital software and so businesses will need to be processing their accounts through a compatible package. This does at least mean that initially, it is largely only businesses already used to quarterly reporting who will need to comply.

A list of HMRC approved software can be found here. At Richard Sexton & Co, we have experience with many approved software providers and will be happy to guide you through any changes that may need to be made to your current system to ensure you meet the requirements.

For the first year of Making Tax Digital for VAT, HMRC will have a “soft landing” approach to penalties. However, the usual rules relating to late submissions of VAT returns and late payments which lead to default surcharge periods and penalties for subsequent offences in the 12 month period will be enforced. Penalties for failing to keep accurate records are to be confirmed but are likely to be on a points based system so serial or serious defaulters will be fined more heavily. As filing is going to be mandatory for more detailed information, it becomes more important for all businesses to be on top of accurate record keeping.

Guidance as to how businesses can sign up for MTD for VAT can be found here.

Businesses with turnover below the VAT threshold who are registered for VAT should be automatically exempt but if you do have a letter from HMRC telling you that you should register for MTD, you should be able to apply for an exemption.

The Spring Statement 2019 (13th March 2019) confirmed that Making Tax Digital for Income Tax (and Making Tax Digital for VAT for businesses with turnover under the VAT threshold) would not be in force before 06/04/2021. From this date, it is proposed that other businesses will need to comply with quarterly digital reporting. To HMRC this will include any of the following with a turnover in excess of just £10,000: –

Sole traders        Partnerships      Landlords             Companies        Charities     Non-resident companies

As part of Finance Bill 2017 (08/09/17), more detail as to how the system is proposed to work has been published. The quarterly reports will be called “Periodic updates” to be followed by an “End of period statement” at the end of a basis period for those with a trade or at the end of the tax year in all other cases. The filing deadlines for the End of Period Statement will remain 31 January as for self-assessment and quarterly reporting will be in line with current VAT filing deadlines.

Why cloud accounting?

We feel that it is beneficial for many businesses to keep their records through digital (cloud) accounting software as there are several benefits. The chosen digital system can be tailored to each individual business, accurate forecasting and management reports can be created and effective real-time tax planning is now possible.

Most cloud systems are based around uploading bank transactions (or having a direct feed from your online bank account) and the software is designed to recognise frequently used suppliers and match receipts to sales invoices. It should make routine processing and book-keeping faster and more accurate.

The benefit of having a cloud based system will be that the business would be able to obtain a real-time view of how the business is operating and thus assisting in business decisions. Reports are available that show monthly sales/expenses, aged debtors or creditors lists (to enable the business to keep a track of outstanding amounts owed to the business and by the business) and monthly VAT reports to help the business budget and plan for future VAT liabilities. In all systems there is a dashboard screen on login which gives a snapshot of net profit (over a given time period), balances at the bank and cash in hand and with some packages you also have access to cash flow forecasts.

How we can help

We would be happy to discuss which system will work best for your business and help to set up your cloud accounting package to fit your needs. We currently subscribe to QuickBooks, Sage One and Kashflow (and can therefore obtain favourable rates) but also have a number of clients using Xero, Freeagent and Farmplan so feel that we are well placed to consider the merits of each system. We are Quickbooks ProAdvisors, Sage One Certified Advisors  and we are committed to constantly improving our knowledge to provide the best support to your growing businesses.

We are happy to provide assistance at the level you need it: from entering every transaction; reviewing your entries by regularly logging in or simply providing guidance for the more complicated transactions. The cloud systems mean that we will have the ability to log in to access your records easily at any time (which would be beneficial when going through particular transactions with you remotely, simultaneously being able to view the same screen from our respective computers) in order to provide the support you require. The software providers also provide support so can help with processing issues if required.