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While no official guidance has been issued yet on how businesses will be expected to submit their accounts under Making Tax Digital, it’s clear that the government’s intention is to move towards digital record keeping.

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As an accountancy firm who has specialised in digital accounting for the past three years, we thought it would be helpful to answer some frequently asked questions in this blog post.

What is Making Tax Digital?

Making Tax Digital (MTD) is the name of the government’s programme to transform the UK’s tax system into a world-class, digital service that simplifies the process for the calculation and submission of tax returns and annual accounts.

The government has stated its intention is to improve access and ease of use, reducing the likelihood of mistakes being made:

“Making Tax Digital is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs – meaning the end of the annual tax return for millions.”

The “end of the annual tax return”, however, means most businesses will be expected to complete their tax returns on a quarterly basis under MTD.

When will the change take place?

While implementation dates seem to be changing with each new budget announcement, these have not changed much from when they were first announced.

The official timetable gives the following dates for when different groups will be expected to begin using the digital tax service:

  • April 2018 for income tax and National Insurance contribution (NICs) purposes if your turnover is over the VAT threshold
  • April 2019 for income tax and NICs purposes if your turnover is below the VAT threshold
  • April 2019 for VAT purposes for everyone who is VAT registered
  • April 2020 for Corporation Tax (CT) purposes for everyone who pays CT

With the earliest of these less than a year away, businesses and self-employed individuals should start considering how they will prepare for the move to digital record keeping.

What records will I need to keep?

Under MTD, businesses and self-employed individuals will be required to keep digital records of all trading and transactions.

These records include:

  • Bills for your company (eg, phone, electricity, company vehicles)
  • Invoices (for services sold and services bought)
  • Expenses related to work completed (eg, mileage, food, accommodation, tools)

Regardless of when your tax returns are due, keeping records up to date is important to ensure you know how much you are spending and the tax you need to pay.

The sooner you can get started start keeping digital records, the easier the transition will be when MTD is introduced.

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How do I keep digital records?

Most accounting software packages let users to raise invoices and keep track of their purchases but few give the option to save copies of bills and receipts within the system.

Online accounting software options typically allow users to scan and upload receipts, while many of them also integrate with apps for functions that include eCommerce, time-tracking and taking payments.

If your business is locked into a contract or is not yet ready to move to online accounting software, there are a number of tools available for saving digital copies of receipts, bills and invoices, including this iPhone app.

However, using online accounting software will make it easier to keep track of important records in the long-term, as all your documents will be in one place.

Which accounting software should I use?

When you use online accounting software, all your data is stored in the cloud, which means it can be accessed from anywhere you can connect to the internet. You can also view your accounts in real-time, which means you’ll be able to gain an accurate reflection of your company finances from wherever you are.

There are many options available for online accounting software and packages range from single-user plans through to enterprise solutions, so it’s important to make a list to ensure you’ll have all the features you require for your digital accounting needs.

It’s also worth checking there is dedicated, UK-based support available, otherwise you may need to move your data to another system when MTD is introduced.

While many firms only work with bespoke software, our accountants are experienced in using Freeagent, Kashflow, QuickBooks and Xero, which all offer UK-based support, integrations with other popular business apps and tools for recording your bills, invoices and expenses.

Will I need an accountant?

All of the software options mentioned above are easy to use but understanding what HMRC requires can be a challenge in itself, so it’s important to ensure you can get expert advice from someone experienced in working with HMRC.

Your software most likely won’t be able to advise the tax benefits you could be claiming or the best way to set up your company, however, if your accounting needs are straightforward, opting for online accounting software may be a perfectly suitable solution for you.

With quarterly returns for most businesses due to be introduced under MTD, some businesses may find it helpful to review the cost of employing traditional accounting services to support returns required this frequently. Moving to a firm with a model that offers fixed monthly payments may help in keeping costs down and reducing the amount of time a business needs to spend updating its accounts.

How can we help?

Cobia specialises in providing accounting and taxation services for freelancers, contractors, self-employed individuals and small businesses for a fixed monthly rate (with no hidden costs).

This includes the services of a dedicated accountant to advise how to make your business as tax-efficient as possible while taking care of all your accounts and returns.

You’ll also gain access to award-winning online accounting software you can use for invoicing and logging expenses, ensuring your accounts are up to date and HMRC compliant.

Our team of experienced accountants know what to look for when it comes to tax returns and can even take care of your self-assessment.

To find out more about how Cobia can tailor a package to meet your digital accounting needs, contact us today.