MTD is just around the corner, but a lot of businesses don’t even know what it is or what they have to do to be ready! In this blog we’ll explain what MTD is and go through the steps we take with our clients to make sure they’re ready.
What is MTD?
MTD is short for “Making Tax Digital”. It’s new legislation being brought in by HMRC from 1st April 2019 that will affect all VAT registered businesses with sales above £85k. The rules require businesses to keep their records “digitally” and submit VAT returns via compatible software. Keeping handwritten cash books and lists of sales alone will no longer be acceptable.
The same rules will apply to all businesses from 2020, but with HMRC’s track record in delivering projects like this, we wouldn’t hold our breath on that one!
What is digital record keeping?
Digital record keeping is basically storing all your business transactions (income and expenses) in a digital format. This can be on spreadsheets or compatible accounting software such as Xero, Quickbooks or Sage. Each transaction has to be recorded individually and include a date of supply, net before VAT and the rate of VAT charged. If you have a till that isn’t connected to your accounting software, then daily totals can be taken from the till and entered into a spreadsheet or accounting software to save masses of transactions having to be listed out.
The software also must be capable of submitting VAT returns to HMRC. The current method of logging into HMRC’s website and manually typing your VAT return figures into the boxes will no longer be available.
Steps we take with our clients to get them MTD ready!
1. Xero! The MTD compatible software we use is Xero, so firstly we’ll explain how xero works and give you a little demo or send some videos of how it works. Depending upon what version you’ll need, the cost will be between £10 and £27 per month and this will be included in your monthly fee paid to us. We’ll send you a full proposal detailing all the services you’ll be paying for, so you know what you’re getting for your money.
2. Work out how we’ll get your sales data into Xero
How you record your sales will differ from business to business:
- If you invoice your customers, using Xero to invoice will be a solution. We’ll get your invoice template set up and send you some tutorial videos of how to send invoices.
- If you want to upgrade your till to make things easier, an EPOS system like Square or Izettle will be a solution. We’ll advise you on what equipment you’ll need to buy and sign you up with the software that fits you best. We’ll also connect your till to Xero and your sales data will feed into your VAT return automatically.
- If you have website sales, we can usually connect them to Xero and the data will be pushed into Xero for the VAT return.
- If you have a standard cash register, you’ll be able to export your sales data and send it to us to upload into Xero. Or we’ll give you a spread sheet to list out your daily takings.
- If your business is a bit more complex, we’ll work out a bespoke solution to get you MTD ready using spreadsheets or apps that fit how you work.
3. Receipt bank!
To record your expenses, we use Receipt Bank. It’s an app on your smart phone and all you do is take a photo of a receipt as you get it and press send. It then comes to us and we do the rest. If you get any receipts on email, you forward them to a unique email address and again we do the rest.
We’ll set you up with Receipt Bank and send you some tutorial videos and help sheets. The cost of Receipt Bank is between £10 and £20 per month, depending upon the size of your business. This will be included in your fee paid to us and detailed in your proposal.
For the first quarter we’ll ask you to do your VAT return as normal, as well as using Xero and Receipt Bank. If the return in Xero matches, then we can push on and scrap the old way of doing things. If the figures in Xero don’t match, we’ll look at the differences and work out why. With a few tweaks here and there, we’ll get it to match and do another test run the following quarter. We’ve not had any returns that haven’t matched on the second test run yet!
If you follow the basis of these steps and act now, you’ll be ready with loads of time to spare!
If you’re leaving everything to your accountant and haven’t had a conversation about MTD yet, ask them why. Time is running out! They may have been working hard behind the scenes and have everything covered. Or in a lot of cases they may be brushing it under the carpet and hoping that MTD never happens! MTD is not going away!
If you need any help, get in touch with us.