Making Tax Digital one year on
One year on from the launch of the new Making Tax Digital for VAT regulations, we take a look at how the process has gone so far, and what Making Tax Digital could look like in the future.
Making Tax Digital so far
Making Tax Digital was brought into force in April 2019. The new regulations mean that VAT-registered businesses with a turnover of more than £85,000 are required to use the Making Tax Digital (MTD) service to keep records digitally and use accounting software to submit their VAT returns. To find out more about what Making Tax Digital is you can read our guide here.
According to the new report released by the government, by 9 March 2020 over 1.4 million businesses had become part of the Making Tax Digital (MTD) service. Plus, over 4 million VAT returns were submitted using compatible software. This is over half of the VAT registered businesses in the UK!
Of the businesses required to comply with the regulations, 83% signed up on time, and 95% of those businesses made their first return by the deadline. For those who didn’t, the government is offering reminders and support.
More than 270,000 small businesses who sit below the VAT threshold have voluntarily joined Making Tax Digital to submit VAT returns online, embracing using online solutions to do their accounting.
Soft landing for Making Tax Digital
There is currently a ‘soft landing period’ for the introduction of Making Tax Digital, which means that instead of a digital link, copy and pasting data can be used to submit a VAT Return.
The soft landing has been extended to end next year! So, all businesses required to follow MTD will have to digitally submit for their first VAT Return period starting on or after 1 April 2021. This is a welcome extension for small businesses, given the current climate surrounding COVID-19.
Why are businesses failing to sign up?
One possible reason for those who have yet to sign up could be the belief that it will cost more to switch accounting solutions, the learning curve of a new software, or struggling with complex accounting. But, this doesn’t have to be the case!
With Bokio accounting software, you can submit an MTD compliant VAT return in just a few clicks. You just need to do all your bookkeeping in Bokio. The software is very simple to use, so you can choose to do your accounting yourself, or in collaboration with your accountant.
Learning new technology
In a survey by Thomson Reuters, 51% of respondents reported having simplified or more efficient processes, with 32% saying they now have more accurate VAT returns. 19% of companies said they also have better visibility of their tax liabilities thanks to the scheme. This shows the benefits that switching to an online software can give for businesses.
79% of respondents either agree or strongly agree that “they are comfortable using technology to manage business finances,” while 10% disagree, or strongly disagree with the statement.
For the 10% struggling with online accounting technology, finding a simple, user-friendly solution becomes crucial to becoming comfortable with MTD regulations.
Why use an online accounting software?
Online solutions have a lot of benefits compared to the common practice of using spreadsheets to manage accounts. Bokio’s accounting software is automated, so it removes the need for maths, formulas, and in-depth accounting knowledge.
There are additional features to simply doing your accounting, like expenses management and an invoice generator. Plus, using an online software also gives increased security of your data with backups, encryption and convenient access on the go.
What comes next?
HMRC has been running a small MTD pilot for Income Tax since 2017. The participants are sole traders, businesses, landlords and their agents, who can do their tax through MTD without submitting a tax return.
New functionality is continually released that allows the pilot to grow, including a wider range of participants and income types. In March 2018, the pilot moved to a public beta trial, and over 1 million businesses and landlords are now able to join the pilot. You can sign up on the HMRC website.