Making Tax Digital (MTD) for VAT, first introduced back in April 2019, has been a hot topic for UK business owners over the past few years. The scheme has been introduced to revolutionise the UK’s tax system, requiring businesses to keep digital financial records and send off annual returns using MTD-compatible software.
At first, it only applied to businesses with a taxable turnover of over £85,000 per year. From April 2022 onwards, however, it will apply to VAT-registered businesses of all sizes—from large multinationals to one-person startups.
So how exactly can entrepreneurs get up to speed with what’s required? By reading this article. Below, we outline how UK-based small businesses can prepare, exploring the three key steps that they need to follow.
Understand What’s Required (And Implement The Right Tools)
MTD basically requires businesses to do two things:
- Keep digital records
- Submit their VAT returns using compatible software
So while small businesses might have been fussing over the process of making tax digital, in reality, it should be a fairly simple affair. Well, provided they have the right tools in place. Before they get started, they’ll need to first implement MTD-compatible software that allows them to keep digital records and submit VAT returns.
Fortunately, there are hundreds of options available. We recommend picking industry-leading tools, such as Sage, QuickBooks, or Xero, but feel free to choose any of the providers that HMRC lists as being acceptable options.
The MTD VAT will only kick in for self-employed businesses and landlords with annual business or property gross income above £10,000 from April 2024.
Upload Your Business’s Financial Records
Of course, MTD is about more than simply implementing the right software before the deadline. With VAT going digital, you need to ensure that you have all necessary data and financial records to hand before your MTD VAT submission deadline (a month and seven days after the end of your accounting period/your year-end).
Even if your year-end is December, it still makes sense to get your records in order before then. But why? Can’t you simply wait until the end of the year?
Legally, yes you can—but we don’t recommend this approach. Accounting softwares, the type that is MTD-compatible, offers business owners more than simply a portal where they can digitally store their data. These types of tools help business owners (and their accountants) make sense of their company’s data.
They reveal monthly cash flow variations, identify which products or services are most profitable, and help businesses stay on top of how much tax they are likely to owe. And that’s just scratching the surface. Accounting software turns data into insights—insights that entrepreneurs can use to grow their businesses.
That’s why we recommend that business owners upload their company’s financial data as soon as possible. Better still, they should upload all historical data as well. This will give them the richest, most detailed view of how their business has progressed (or regressed) over the past few years. The more data, the better.
Entrepreneurs might only be implementing digital accounting software to comply with MTD—but its benefits extend far beyond compliance alone.
Work With An Accountant
MTD doesn’t require businesses to work with an accountant. If you like, you can go through this process yourself: getting to speed with the requirements, picking and implementing the right tools, uploading your financial data, submitting VAT requirements, and so on.
But come on—you’ve probably got 1,001 other things that you need to do.
E-commerce entrepreneurs don’t go into business so they can spend hours each week dealing with financial admin. Yes, it’s part of running a business—but no, it’s not something that they themselves need to deal with.
The impending MTD deadline is a fantastic time for entrepreneurs to reevaluate their own accounting methods. They should take a step back and consider whether their current approach is adding genuine value to their business. If they’re wasting countless hours just trying to stay compliant with HMRC, then their approach is likely detracting from—rather than enhancing—their success.
By working with an accountant, entrepreneurs can gain more time to focus on what they’re good at while also tapping into accountants’ financial expertise. Compliance will be an automatic expectation—but they’ll also gain accountants’ key insights into how they can cut costs, grow their business, and tap into new markets (among other areas).
Making Tax Digital With Osome
If you’re ready to change your financial admin processes for good, there’s only one place to go: Osome. We’ll get your business up to speed with MTD in no time at all. Our proprietary accounting software with expert accountants shows your daily balance from all connected apps, outstanding invoices, and documents that you need to upload.
Better still, all your accounting tasks will be fully automated moving forward: tagging invoices, reconciling transactions, identifying missing documents, and filling out reports. If you ever have a question or a query, simply get in touch with one of our experienced Chartered Accountants.
MTD is here—but don’t go through it alone. Work with Osome to make the process simple, seamless, and successful. Stay compliant while unlocking more time and greater savings. You won’t regret it.