Making Tax Digital (MTD) is a government initiative to modernise the UK tax system, with the aim of making the whole process of administrating tax simpler and more efficient. All of your tax information will be in one place (your digital account) and you will ultimately pay tax based on your business activity during the year and you will have to upload and update your tax account in real time.
In the summer of 2017, with BREXIT and a general election to deal with, the Government put MTD on the back burner and announced a 12 month delay in the launch of certain key elements. However in January 2018 a revised timetable was announced and MTD is firmly back on the agenda.
April 2019 is the start date for every Vat registered business over £85k turnover to submit Vat data via “Functional Accounting Software”
The next 12 months will see huge changes for us and our clients and businesses under the £85,000 turnover will follow in April 2020. For businesses with a 30 June year end, 1 July 2018 is the start of the accounting year in which MTD Vat filing begins – so these businesses really need to be using the right software by 30 June 2018.
What is Functional Accounting Software?
The law is changing and from April 2019 all Vat registered businesses with turnover above £85,000 must have “Functional Accounting Software”. Currently there is no definition or list of what qualifies as Functional Accounting Software, but
In reality this means you need one of the mainstream small business software packages, like Xero, Sage, Quickbooks etc…
The latest version, with the latest updates and to make it simple, it all needs to be on the cloud.
- You won’t be able to log into the Gateway and key in Vat data as many of us do now
- Manual records are no longer acceptable
- Unless you want to faff about with API connected spreadsheets, Excel working papers linking your accounts software figures to the Vat return won’t work either
- And using an out of date version of your software will no longer be an option
Most of our small business clients use Xero or Sage 50 and these remain our default recommendations
- Xero is cloud based, so updates happen behind the scenes and your data is secure and backed up
- Sage 50 is what Sage call “on premises” software, so it sits on your PC on your desk – making updates and backups much more of a faff
- Both Xero and Sage have moved to a monthly licence fee model – so the days of buying your software and keeping the same Sage version for 3 to 5 years are over
Dafferns are Gold Xero partners and you can learn more about Xero and the benefits of cloud accounting HERE
Doing nothing is not an option for any small business and we will be supporting our clients though this change.
Martin Gibbs is Dafferns Managing Partner and specialises in advising small and owner managed businesses – to contact Martin, please click here