Throwing all your invoices, receipts, statements and paperwork into a shoe box (or worse still, a carrier bag!) has been the accounting system of choice for many small businesses, for many years. Whilst that may continue to be the system of choice for those under the VAT threshold for the time being, after the initial introduction of Making Tax Digital (MTD) in April 2019, that simply is no longer an option for those over the VAT threshold. By 2020 all businesses will need to be doing something which is MTD compliant in any case.
In fairness, the amount of people who adopt this approach are a much smaller minority nowadays, but the point is that many people will now have to learn a new approach or pay to have it done for them if they are not willing to do it themselves. It will no longer be acceptable to simply enter nine figures onto a VAT return via the HMRC portal either. Evidence suggests that around 87% of returns are submitted in this manner as things stand - although many already have software suitable for direct filing but just don’t use it to do the submission.
Once MTD is mandatory, businesses will be required to keep their accounting records in a digital manner (see our article by Grant Smith on the digital recording of transactions). It was intended that spreadsheets would not count, but this has been relaxed as long as there is an Application Programming Interface (API) that can link them to HMRC – but unfortunately no such software is currently available.
Whilst the familiarity and ease of use of a spreadsheet is appealing to micro businesses, even with API compliant spreadsheets, it may be best to simply jump straight into a good cloud based accounting system like Xero. Using this as an opportunity to take control over your business information, in a way which will also allow for better budgeting and forecasting, makes a lot of sense.
Although the transition from a very basic manual system to something which is MTD compatible may seem very daunting and just another hoop to jump through, particularly for the smaller business, you must take that first step now. If it’s left until April 2019 when accountants are helping many other businesses, you may not be compliant from the start date.
Speak to your trusted advisor now and throw away that shoe box!
To find out more about Making Tax Digital and ensure you are compliant give Richard a call.Contact Richard to find out more
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