As you are probably aware if you are involved in running a small business, the way we record and file all of our taxes is currently undergoing a momentous change. Making Tax Digital (MTD) is the government’s flagship program to make the UK tax system fully digital. It requires businesses and individuals to maintain digital records and file regular tax returns using BAT-compliant software.
HMRC says this will ultimately make the scheme more effective, efficient and easier for taxpayers to use. He said, in fact, that in a recent independent study of more than 2,000 companies, more than two-thirds (69%) said they had experienced at least one benefit from BAT.
However, this requires some changes and businesses and individuals should get used to it as soon as possible. The first part of a phased rollout was BAT for VAT, which was introduced for businesses above the VAT threshold (a turnover of over £85,000) and extended to include all companies subject to VAT from April this year.
Keeping accurate records is an essential part of running a business, of course, and many businesses were already using specialized software to track different aspects of their finances even before MTD came along. This is generally a smart move for sole traders, micro businesses and small businesses as it brings a number of benefits. From creating smarter invoices to controlling your cash flow, tracking expenses, payments, salaries, and more, digital accounting makes a lot of sense.
VAT is an aspect of finance that can be difficult for many sole traders and small businesses to master. Using VAT filing software can help simplify the entire process, from choosing the right VAT rate for your business and how often to apply it, to keeping a digital paper trail to integrate to your wider banking and accounting processes, whether you’re running reports or submitting your returns to HMRC.
The easiest way to interact with HMRC regarding your VAT and other tax matters is to use software that is fully compatible with MTD, and there are many suitable software packages to choose from. These will allow you to keep records through the dedicated software, but many companies have historically used other methods – notably in the form of spreadsheets. Despite their widespread use, spreadsheets are not compatible with MTD. They need additional software, known as transition software, to “translate” the data held in the spreadsheets and make it BAT compliant.
According to HMRC, there are no plans to eventually force businesses to abandon their spreadsheet systems for digital record keeping and tax calculations, as long as they are used in conjunction with transitional software. You’ll need this kind of bridging software to use as a back-up if you continue to use spreadsheets or other software that’s incompatible with MTD, but dedicated MTD software might still prove to be a better bet when it’s over. It’s about accurate reporting and a more efficient end. experience to the end.
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