Rewind the clocks back to December 2015; David Bowie was still alive (just), David Cameron was still the Prime Minister (just), and Making Tax Digital had (just) been announced. Everything was going so well up until that moment, but the second Making Tax Digital was announced, it was met with scepticism and doubt.
Move on to early 2017, just after the snap election was called, and all of a sudden any Making Tax Digital update had been postponed and shelved; not to be released until 2018. Many business owner’s were left puzzling about when any Making Tax Digital update would actually come about and what it would eventually entail.
Well, we finally have more information on the Making Tax Digital scheme and what it might mean. You can read more about the changes to Making Tax Digital here, or you can read this article to see how it will affect your small business.
How A Making Tax Digital Update Affects Your Business
If you’re up to date with the changes to Making Tax Digital, you’ll know that it only affects businesses that have a turnover that is higher than the VAT registration threshold (£85,000). That might be it for now, however the scheme will still affect your small business sooner or later; it would be best if you got prepared for it as soon as possible.
The Making Tax Digital scheme once promised that all businesses would have to provide HMRC with a digital tax return on a quarterly basis; this has now been narrowed down to VAT registered businesses. The logic behind this is that VAT registered businesses already have to file their VAT returns quarterly, so having to do their tax returns too on a quarterly basis won’t be a huge shock to the system.
If you aren’t a VAT registered business, you don’t have to worry about Making Tax Digital until at least 2020. By that point, HMRC are hoping to have measures in place to introduce the scheme to all businesses, not just VAT registered businesses. This means small businesses will have to file tax returns quarterly rather than yearly, which creates a lot more strain and pressure on businesses who don’t necessarily have an accountant to help them through the process.
What You Should Do
Realistically, you have two options.
Making Tax Digital won’t start until 2019, even for VAT registered businesses, which means you have some time to prepare and practice. If you want to do your own tax returns but need time to readjust to 4 tax returns a year, you could apply for voluntary VAT registration. This will mean you will have to file 4 VAT returns a year, but it will also give you access to VAT expenses, as well as being good practice for when Making Tax Digital comes into play.
The other option is to hire an online accountant. Making Tax Digital won’t be here for another 3 years at least (hopefully it will take longer), which isn’t actually that long. Hiring an online accountant now will mean you’ll have a few years of respite where you have to do minimal work on your tax returns, and when MTD does appear, your accountant is ready to do the work for you.
It’s good to see some clarification from HMRC on what Making Tax Digital is now going to involve and when it’s likely to make every business owner’s life a misery appear. Now we just need to batten down the hatches, prepare the sandbags, board up the windows hire an online accountant in preparation.
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