If you are a business owner or trader, you will likely be aware of the UK government’s Making Tax Digital initiative. The initiative is basically aimed at making the UK tax process completely digitalised. This will make the process easier and will also reduce the chance of fraud and missed payments. However, there have been some complaints from taxpayers as the HMRC have not created or released a software that taxpayers can use in order to comply with the new legislation. That’s why we thought it was a good idea to take a look at the kind of software that will be required, and also some good examples of software that you can use.
Brief Background For MTD Software
If you want a detailed explanation of Making Tax Digital (MTD) you can check out our article on the topic by following the link.
But, in order to understand the purpose and usefulness of the software we’re going to be talking about, it is important to have a little context. As stated in the introduction, the aim of MTD is to make the whole tax system digital. In order to do this, the UK government are now requiring businesses to implement a way of electronically recording their sales and then sending them directly to your tax returns records.
Despite the implementation of MTD being delayed due to covid, a lot of businesses have already been required to implement this form of reporting into their sales. At this point, businesses with an annual turnover of £85,000 and above have had to sign up for MTD. The deadline for everyone else is April 2022. By this point, all businesses and trader should have adopted Making Tax Digital software and should be reporting their VAT returns digitally.
Records You Must Keep Digitally, According To HMRC
HMRC have provided the following list for records you must keep digitally:
You need to keep the following records digitally:
- your business name, address and VAT registration number
- any VAT accounting schemes you use
- the VAT on goods and services you supply, for example everything you sell, lease, transfer or hire out (supplies made)
- the VAT on goods and services you receive, for example everything you buy, lease, rent or hire (supplies received)
- any adjustments you make to a return
- the ‘time of supply’ and ‘value of supply’ (value excluding VAT) for everything you buy and sell
- the rate of VAT charged on goods and services you supply
- reverse charge transactions – where you record the VAT on both the sale price and the purchase price of goods and services you buy
- your total daily gross takings if you use a retail scheme
- items you can reclaim VAT on if you use the Flat Rate Scheme
- your total sales, and the VAT on those sales, if you trade in gold and use the Gold Accounting Scheme
What Does The Software Do?
Fundamentally, the software will allow you update and store your records digitally. The software will be able to pull information directly from these records and then communicate directly to HMRC. Clearly, this will mean a lot less administrative work for you.
If you are already using some form of bookkeeping product or merely just using spreadsheets, you can also use bridging software. As suggested by the name, bridging software allows you submit your information via software that is not compatible with MTD.
Good Examples Of Available Software For Making Tax Digital
As you might expect, a lot of the usual suspects are present when looking at the best accounting software for MTD. QuickBooks, Xero and SAGE have been the most popular so far, and which one you decide to use depends on your business.
For example, Xero is a cloud based software that is very useful for bigger businesses. However, it does not yet connect with all UK banks, so you would have to check whether your bank is supported. QuickBooks has access to all banks, but it’s cheaper options, such as their starter pack, have quite limited features and would be more suitable for a smaller soler trader.
Make sure to check the features of each software thoroughly before signing up. HMRC have conveniently provided a list of available software, which you can find here.
What About After That?
After that, it is time for you to sign up for MTD and begin submitting your returns digitally. It is recommended that you then employ an accountancy service to ensure you are VAT compliant. With an accountancy firm, you can even still comply with the new MTD rules by sending your spreadsheets to them and let them handle the issues posed by making your tax digital, without the need to use the software.
That’s where we come in.
J&P is a registered accounting firm in the UK. We have the qualifications and strength to help you plan ahead, so please do not hesitate to get in touch should you have any further questions about this policy, or if you need any help with submitting your VAT returns. You can contact us at firstname.lastname@example.org, on our social media, or give us a call on 0161 637 1080.