Making Tax Digital (MTD) is an innovation introduced by HMRC to make tax filing and payment more manageable. It requires that accounting software be used in completing tax returns and that records are kept electronically. Currently, Making Tax Digital is compulsory in VAT-registered businesses with a taxable turnover of £85,000. But does this mean that non-VAT businesses are unaffected? Not necessarily. Here are some of the ways this law can affect those that are not registered with VAT.
Related Article –Should I Register For Vat?
In relation to Making Tax Digital
You are not impacted – yet.
The HMRC has already announced the plan to make MTD applicable to all businesses, including self-employed, partnerships, trusts, and landlords who use self-assessment tax returns. Those who pay corporate taxes will also be affected eventually, although the timelines have not yet been announced.
The point is this: MTD will be the standard in taxes. The sooner businesses prepare for the transition, the smoother the process will be. It may help to at least keep a spreadsheet of your finances instead of paper records. The latter will no longer be sufficient under MTD. A spreadsheet can be a good starting ground for your business in keeping electronic records on accounting.
2. Purchasing accounting software can be expensive for your business.
To sign up for MTD, businesses are required to get a compatible software package or a bridging software that will connect your non-compatible software like spreadsheets with the HMRC system.
Although the HMRC has said that it will not entail much financial investment in businesses, the reality is that it will still require resources-both financial and use of time. It is not just about the purchase of the necessary software. It is also about getting the necessary training to be able to use it properly.
Even if you are not registered with VAT, it is a good idea to allocate resources to getting MTD compliance in the future to protect your cash flow and work hours. You may want to consider getting ahead of the curve and start investing in the software and training early on.
3. You expect your business to grow and will be required to register for VAT.
If your business is on the rise, you may be required to register for VAT soon. VAT registration should happen when the VAT taxable turnover is above the threshold of £85,000. The turnover refers to the total of everything sold that is not exempted from VAT.
Since VAT-registered businesses are already required to comply with Making Tax Digital, you may be impacted by these regulations as soon as you qualify. If this sounds familiar to your business, you may want to prepare for the transition by moving forward with keeping electronic copies of your business transactions instead of being caught unaware. Laying the groundwork is more efficient than waiting until the last minute.
The Making Tax Digital has been called one of the biggest changes in taxation in recent years. Rightly so, since it affects the very heart of tax collection, thankfully, its rollout has been gradual to give businesses time to adjust. Even if non-VAT registered businesses are not at the current forefront in implementation, its effects will be felt sooner rather than later.
Big decisions require significant risks. It requires you to have a firm understanding of your finances and the current needs of your company. If you would like professional input on this matter, don’t hesitate to reach out! Or you can follow us from one of our social media where you can dm us as well!