Make Tax Digital ‘MTD’ – Don’t be an April fool!
Many businesses are heading for a double whammy of uncertainty, with BREXIT scheduled for 29th March (no, don’t even go there!) and the deadline for Make Tax Digital ‘MTD’ inked in for the 1st April…April Fools’ Day, just in case you hadn’t noticed!
At this morning’s CrossReference networking group, our resident accountant – Tim – gave a short presentation on how to add value to your added value issues.
THE LANDSCAPE FOR SMALL BUSINESSES
At the end of 2018, there were 5.7m small business enterprises ‘SMEs’ registered in the UK, of which 2.7m were VAT-registered.
SOURCE: UK Parliament: Briefing Paper – Business Statistics, Dec 2018
However, it is estimated that less than 1m businesses had submitted their VAT returns online by year-end 2018, meaning that well over 50% of UK SME’s are not likely to be digitally-ready as we speak today.
As with all deadlines, there is highly likely to be a last-minute mad rush, but your business doesn’t want to be caught in that position – it rarely ends well.
MAKE TAX DIGITAL: BACKGROUND
As part of Making Tax Digital ‘MTD’, businesses registered for VAT with a taxable turnover above the VAT registration threshold of £85,000 will need to keep VAT records digitally and file their VAT returns using MTD compatible software. This will start from their first VAT period starting on or after 1 April 2019.
SOURCE: UK Gov
Businesses with a taxable turnover below the VAT threshold will not have to operate MTD, but can still choose to do so voluntarily.”
COMPATIBLE ‘MTD’ SOFTWARE
“HMRC has been working closely with software providers to help them to bring a wide range of MTD products to market, and has published a list on GOV.UK of those that are already at the stage of having demonstrated a prototype product ready to start testing with businesses and/or agents.”
SOURCE: UK Gov
Which is all very well, but there are well over 30 software vendors listed on the gov.uk website – which one will be best for your business?
XERO FOR SMALL BUSINESSES
LOVE IT that @Xero now files your VAT returns online for you – one less annoying thing to do. Thanks guys
– Chris Parsons
SOURCE: XERO website
XERO is one of the most widely-used online accounting systems…and that includes by professional accountancy firms, which means it has the benefit of a great deal of technical support.
This was the system briefly demonstrated by Tim for VAT filing purposes.
Notable VAT features:
- No manual receipt entry required – simply scan the receipt and the financial data is automatically uploaded; e.g. a restaurant receipt for £70 was photographed on a mobile phone and uploaded to XERO in real-time, which then automatically allocated it to Entertainment. The entry is held in draft pending authorisation, so can either be amended (if reclassification is required) or approved with 1-click.
- Full rate & scheme flexibility – XERO can record transactions regardless of the VAT rate (standard, flat rate, or cash) or the accounting scheme adopted (accrual or cash).
- Automatic VAT return generation – the software creates a VAT return in real-time which can then be submitted on a quarterly basis with the click of a button.
CONCLUSION
There are many packages out there which are deemed ‘fit for purpose’ by HMRC – XERO is just one of them, but its cost (£5-£20 per month for most SMEs), widespread adoption, and ease-of-use make it one of the preferred options.
Either way, you haven’t got long to get ready for the MTD deadline – after all, you don’t want to make a fool of yourself!
What I did like about Xero was the Demo data – which Sage has not got so you can’t even sign up on the free trial to try it out without setting the whole thing up! Unfortunately you do have to do a trial of Xero to get to use the demo data, but at least it is there.
Xero does seem to be made for the end business user first whilst Sage is aimed more at professional accountants so easy to use if you are trained but not quite so intuitive – in my opinion!