Making Tax Digital comes into effect for VAT registered businesses from April 2019. So if you are affected you’ll need to get yourself set up on an HMRC Compliant Software for Making Tax Digital.
What is Making Tax Digital
Making Tax Digital is the biggest shake-up to the tax system ever. It aims to digitise the entire tax system, with quarterly reporting into HMRC and regular tax payments by businesses AND individuals.
HMRC has estimated that errors and mistakes result in over £9 billion lost taxes annually, a loss they feel they can hugely reduce by making people switch from manual bookkeeping to full digital bookkeeping.
The first to be affected by this are VAT registered business (those are businesses with a turnover of over £85,000).
These businesses will need to submit their VAT returns to HMRC using an HMRC Compliant Software.
Other businesses and people will need to start digitising but the confirmed start dates are on hold (mainly due to the time required on Brexit).
HMRC Compliant Software for Making Tax Digital
Most of the market-leading options for cloud accounting have now been approved by HMRC as officially being compliant for Making Tax Digital. These include:
- Freeagent (get a free trial of Freeagent here)
- Xero (visit the Xero website here)
- Quickbooks (visit the Quickbooks website here)
There is a full list of HMRC Compliant Software for Making Tax Digital on the HMRC website here.
What Do You Need to Keep for Making Tax Digital
Digital Record Keeping means you will need to enter every business transaction onto a piece of software, for example, listing out all the invoices you send out in a list rather than adding them together manually and recording it as a single figure.
You can still keep paper copies of all your records or choose to scan copies in (that part of business record keeping seems to remain unaffected).
New Here? These are my most popular resources:
- The Ultimate Bookkeeping Spreadsheet – Organise your money, track the numbers that matter and stay on top of your cash;
- Freebies – templates, spreadsheets, calculators and cheat sheets. Here you’ll find all my freebies for the self-employed community, all in one place.
- Sole Trader or Limited Company? – Download my free calculator to check which business structure would help you to pay less tax;
- FREE Business Expenses Cheatsheet – Check what you can and can’t claim as an expense against your taxes.
- 6 Core Elements of Self-Employment Taxes – Confused by taxes? Worried you’re missing something when it comes to tax allowances and reliefs? These easy to follow 6 mini-guides will have you on top of the tax side of things in no time at all.