Business and Tax, Creative

The 5 Stages of Making Tax Digital for Creatives

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Making Tax Digital Denial

Making Tax Digital Denial

Is your Creative Business ready for Making Tax Digital 2019?

This April sees the launch of the first phase of Making Tax Digital (MTD), a government initiative which will require individuals and businesses to submit tax returns online.  Rumour has it that we are mostly in denial and uneducated about the looming switch and deadlines involved.  So, let’s get through this together!

Stage 1 – Denial: Making Tax Digital doesn’t apply to me

Making Tax Digital Denial

Making Tax Digital applies to all businesses with very limited exceptions, which are:   

  • The “digitally excluded” – defined as those who cannot engage with accounting software or apps for reasons of religion, disability, age or remoteness of location.
  • VAT registered businesses with turnover below £85,000, in this case, Making Tax Digital will be voluntary. MTD is mandatory to VAT registered businesses with turnover exceeding £85,000. 
  • Unincorporated businesses and landlords with a gross income/annual turnover below £10,000. In the 2017 Spring Budget the chancellor announced that unincorporated businesses with annual sales between £10,000 and the VAT threshold would be given an extra year to prepare for MTD.
  • Deferred until October 2019: The 6-month deferral applies to customers who fall into one of the following categories: trusts, ‘not for profit’ organisations that are not set up as a company, VAT divisions, VAT groups, those public sector entities required to provide additional information on their VAT return (Government departments, NHS Trusts), local authorities, public corporations, traders based overseas, those required to make payments on account and annual accounting scheme users.

More denial – Making Tax Digital doesn’t apply to me because I have an accountant

If your accountant is registered as your tax agent, they will be able to use their own MTD-compliant software to file your VAT returns (and other tax returns from 2020).  We use Xero for all of our clients.  However, you will still need a digital link from your data to theirs. If you do your own bookkeeping, you may need new software – micro-businesses recording income and expenditure on a spreadsheet will no longer be compliant.  MTD isn’t just about a digital return. It’s about keeping all your records digitally.

Stage 2 – Anger : How Dare they Make me MTD!

Stage 2: Making Tax Digital Anger

Just let it out, hurl obscenities at HMRC, scream into a pillow.  Change can be annoying and even scary, but the ultimate idea of Making Tax Digital is part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs. HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world. It’s far easier to submit returns using online accounting software compared to traditional desktop software.

Stage 3 – Bargaining – What if…

What if I use something else instead, like my trusty old excel spreadsheet?

No more paper records

Making Tax Digital means every transaction must be recorded electronically.  All data transfer, not just totals, must be done digitally.  The idea behind it all is to reduce the risk of errors often found with manual entries. You can still keep paper records, but you will have to duplicate the work by entering every item into an MTD-compliant software package – really, it’s just time to get on board with what will be a quicker, easier long-term solution.

What if I just wait until I’m good and ready?

Making Tax Digital for VAT timeline

VAT-registered businesses with a taxable turnover above the VAT threshold are required to use the Making Tax Digital service to keep records digitally and use software to submit their VAT returns from 1 April 2019.

April 2019        Making Tax Digital mandated for all customers (except those that have been deferred).

October 2019    Making Tax Digital mandated for customers that have been deferred.

The current web portal is not the same as the new MTD system. From April 2019, it will close for VAT return submissions for businesses with a turnover of more than the threshold of £85,000; from April 2020 it will close to those filing corporation and income tax returns as well. Making Tax Digital
(MTD) means you won’t be able to keep and submit manual records after April 2019. Instead, HMRC
will only accept VAT returns sent using software that supports Making Tax Digital for VAT. Full information can be found on UK Gov website.

Stage 4 – Depression – Pass the ice cream

Stage 4 of Making Tax Digital – Eat Ice Cream

Its ok, we get it, change is stressful. Get some chocolate and some ice cream for the depression stage.   Move over, we’ll join you.

Stage 5 – Acceptance – Give Xero a Try

The long and short of it is you will need to file using MTD-compliant software.  WardWillams Creative use and recommend Xero.  In January we announced that WardWilliams Creative are now a Xero Gold Champion Partner!  This shows how dedicated we are in moving towards a modern and efficient way of working.

Xero for making tax digital

Make Tax Digital with Xero

Xero is an award-winning online accounting software which is helping change the way businesses work allowing us to help save our clients significant sums and add value in terms of great reporting and regular advice! Xero makes things simpler, easier and quicker which gives you more time back in your day to run your business and grow.

Xero will enable you to;

  • Give you a real-time view of your cashflow
  • Provide an anytime online login so you can see up-to-date financials anywhere, on any device
  • Send online invoices to your customers and tell you as soon as they’re opened
  • Reconcile your income and expenses in seconds
  • Give you an app that lets you reconcile, send invoices or create expense claims on the move
  • Import and categorise your latest bank transactions at the click of a button

Don’t leave it until March 2020

No matter which software you decide to use, remember that changes can take time to take hold. If you do have to change to using an MTD-compliant software package, you need to give yourself time to research the package you want to buy, learn the system and transfer your records across.

If you have any worries or questions regarding Making Tax Digital get in touch with us and we will point you in the right direction.

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