The introduction of the Government’s Making Tax Digital initiative is imminent, with VAT registered businesses who earn above the VAT threshold (£85,000) required to migrate their financial records to a digital, cloud accounting platform by 1 April, 2019.
This new, digital tax system is set to become ubiquitous in the UK for all businesses, and by April 2020, the Making Tax Digital legislation stipulates that all sole traders, partnerships, landlords and trading companies will be legally required to keep digital records of their finances and submit quarterly updates for both income and corporation tax purposes.
Benefits of Making Tax Digital
Essentially, Making Tax Digital provides less room for error, miscalculation and fraud, resulting in a more accurate, effective and efficient taxation process. This will save companies time and effort, and it will also reduce the likelihood of any unwanted payable tax surprises when the financial year comes to an end.
While digital submissions of tax returns and other statements have been in place for some time, migrating your business’s entire financial operation to a digital platform might still be a considerable task and may require expert advice – this is where Tax Agility, London’s local accountants for small businesses, can assist.
Cloud accounting, like Xero, exists to simplify small business accounting, thereby reducing any risk to your business at the end of the financial year. Being cloud-based, it also provides extra safety measures for securing and storing your data. If you are a business owner looking to migrate your finances to a cloud accounting platform like Xero, here are some points you need to consider.
Who does Making Tax Digital affect and are there exceptions?
Making Tax Digital affects everyone, however, only VAT-registered businesses earning above the threshold (£85,000) will need to migrate their finances to a cloud accounting software platform by 1 April 2019.
Some businesses are exempt from this requirement however, due to a 6-month referral. These customers have until 1 October 2019 to make the switch. Deferred businesses can fall into the following categories:
- ‘Not for profit’ organisations that aren’t set up as a company
- VAT divisions
- VAT groups
- Public sector entities required to provide additional information on VAT returns, such as Government departments and NHS Trusts
- Local authorities
- Public corporations
- Traders based overseas
- Those required to make payments on account and annual accounting scheme users
Before Making Tax Digital, small businesses were required to file their tax return to HMRC once a year, which could lead to errors and consequently, loss. With Making Tax Digital, small businesses are required to report to HMRC quarterly, thereby decreasing the potential for mistakes and loss, while increasing the financial workload and possibly affecting other aspects of the business.
If your business needs assistance when Making Tax Digital comes into effect, talk to our small business accounting experts, we can help to lessen the burden on you and your business.
Take the opportunity to upgrade your business
Cloud accounting is a more efficient and effective way to manage your business finances and transactions. Digital migration is becoming commonplace across all industries, so it is only natural that the way we manage our finances does the same. Even if you haven’t made the change from manual spreadsheets, your clients and suppliers likely have. Upgrading your business means updating your business, and to do that, transferring your financial operations to the cloud is an important and necessary step.
With 1 April 2019 just around the corner, time is of the essence. Thankfully, cloud-based accounting software is widely available and easy to set-up and use. There are a number of intuitive and intelligent cloud-based software you can access where the companies providing them have support to assist you throughout the entire process. If you already have an accountant who prepares your year-end returns, it’s more than likely they are a partner a cloud accounting software providers, such as Xero.
How Xero can help your business
An intelligent and intuitive cloud accounting software that is listed by HMRC as a compatible platform for Making Tax Digital, Xero makes updating and reconciling your transactions a seamless and straightforward task.
Built for small business owners, Xero allows you to create invoices, record expenses, see how much money is owed and total cash in and out, and carry out simple accounting tasks easily. Xero can also receive a feed from you bank showing you how much cash you have, plus forming various helpful functions such as calculating your VAT and year-end tax.
Moreover, Xero is one of the most effective ways of protecting your company’s financial data from potential fraud, as it uses sophisticated encryption technology to safeguard your information when it is stored on or transferred to and from Xero’s servers.
As a gold partner of Xero cloud accounting, Tax Agility can assist you in preparing the quarterly returns and year-end reconciliation required of your business under the MTD for Business (MTDfB) scheme. We believe that rather than increasing your tax preparation costs, migrating to digital using Xero could in fact reduce your overall accounting costs, and give you greater control and visibility as a business.
If you want to know more about Xero, see this page ‘Xero is a powerful new way of managing your business accounts online’.
Talk to the small business accounting experts
At Tax Agility, London’s local accountants for small business, we understand that Making Tax Digital for Business can be a daunting task that may have a major impact on your current business operations. With time now of the essence, it’s particularly important for small business owners who don’t have a team of finance or bookkeeping experts to get the right assistance to make these changes. The time is now to go digital with a cloud accounting solution like Xero – it’s cheaper than you may think and we will provide your first month for free.
Call 020 8108 0090 or use our Contact Form to see how you can get the most out of Xero or questions pertaining to Making Tax Digital.