We’ve written loads about MTD recently, covering everything from how it’s going to affect small business owners to how it’s going to affect accountants to the most common misconceptions about it. We’re more than happy for you to read through all of it — grab yourself a cuppa and a comfy chair first — but, if you’re pushed for time and are just looking for a quick reference guide, we’ve got you covered for that too.
You’ve probably noticed that there is no shortage of rumours surrounding the initiative. People do love to speculate and the lack of concrete information on the initiative has given everyone plenty of speculation fodder! So, we’ve decided to cut through the noise and bring you a simple guide that will cover the MTD basics.
MTD in a nutshell:
Everyone loves an acronym but for the sake of clarity, let’s give the initiative its full name: Making Tax Digital.
Making Tax Digital is an attempt to do exactly that. Instead of filing one headache of a document, once a year, small businesses will have to keep electronic recirds of their accounts (using HMRC MTD approved software) and file their tax information digitally, on a quarterly basis. You will be able to send the information directly to HMRC through a personal digital account and check details throughout the year to make sure they are correct.
No more shoebox accounting, no more hunting around for receipts come tax time. In theory, an easier system all round.
- Will I have to file my tax return four times a year?
No. This myth is an easy one to bust. Yes, you will have to update your tax records four times a year but this is not the same as doing four separate tax returns. Everyone dreads completing their tax return; they put it off until the last minute and then have to deal with a full year’s worth of receipts and invoices. Frankly, it’s a nightmare.
The quarterly updates for MTD will not be a quarterly repeat of this performance. Rather, you will update your books as you go, throughout the year. Every quarter, you’ll simply have to review the data and confirm that it is accurate.
- Will I have to pay more tax?
Again, no. Equally, you will not have to pay tax four times a year. You will have to pay tax once a year, as you do now.
However, you will be able to keep a closer eye on your tax obligations. As you add your data into the MTD interface, the technology will calculate your tax bill and update it automatically. This means you will be able to check, at any point, what your end-of-year tax bill will be, and save accordingly.
- I’m terrible with technology, how will I cope?
This is a legitimate fear for many. A number of small businesses have yet to embrace digital technology in their accounting, and many are perfectly happy with their manual methods or receipt stuffed shoeboxes.
However, if you fall into one of those camps, there is no need to panic. The interface has been designed with ease of use in mind and for those who consider themselves to be ‘digitally excluded’ there will be alternative options. You will be able to submit your financial data over the phone or to nominate a proxy, such as an accountant, to submit the data on your behalf.
- Will I have to hire an accountant?
Not if you don’t want to. The MTD interface should be fairly easy to use and will make it easy for users to calculate their tax bill on their own. However, a skilled accountant could make the transition smoother for you and help you get to grips with the necessary software. An accountant could also help you make the most of your tax planning and could save you far more than it would cost to hire them in the first place.
- Am I going to have to spend a fortune on software?
It’s another ‘no’.
If you’re already using a digital accounting system, it’s possible that your software will be compatible with MTD. And if you aren’t? Going digital needn’t cost a fortune. HMRC has stated that it will provide free, basic software and there are plenty of low-cost options on the market if you want a more sophisticated system.
Making Tax Digital is coming — it’s likely to be be in place, at least partially for some businesses, as soon as 2019 — so we do have to prepare for some changes. However, after the initial transition period, we believe that MTD will have a profoundly positive impact on small businesses in the UK.
Clear Books is here to help.
We’re experts in digital accounting, and we’ve done our research on MTD to ensure that our clients can face the changes with confidence. To make the transition as smooth as possible for everyone, we have two products that will help you make the switch to digital.
If you’re ready to go all in, Clear Books™ can benefit your business in a number of ways from easier invoicing and profit and loss reports to submitting VAT returns directly to HMRC.
Or if you’re still just dipping a toe in the digital water, why not try Clear Books Micro? This simple spreadsheet system allows access to the cloud and will be fully compliant with MTD. Best of all, it’s free.