Everything you need to know for making tax digital

Making Tax Digital (MTD) comes into effect in April 2019. It means VAT returns will need to be submitted electronically and it is the first step towards the Government’s aim of making tax data digital. Ryan Fox, salon consultant from umbrellaconsulting.co.uk who provide accountancy services for salons  outlines the changes you and your salon will need to make to comply with the new rules.

Who will be affected by Making Tax Digital?

All UK-based businesses who are VAT-registered and have a turnover of £85,000 or more must comply with the new rules whether you are a sole trader, partnership, LLP or limited company, so this will affect a large proportion of salons. If your turnover is less than £85,000 excluding VAT (£102,000 including VAT) and you are not registered for VAT or you have chosen to register for VAT on a voluntary basis, you don’t need to change your process unless you go over the threshold. If your company is on the Flat Rate VAT scheme you don’t need to keep a digital record of your purchases unless they are capital expenditure goods on which input tax can be claimed and you don’t need to keep a digital record of the relevant goods used to determine if you need to apply the limited cost business rate. Once within the scheme, you must remain in it while you are VAT-registered, even if your turnover falls below the VAT-registration threshold.

When will Making Tax Digital become compulsory?

Making Tax Digital (MTD) for VAT comes into effect from April 2019 and applies from the start of your first VAT return period or after 1 April 2019. For Example:

VAT return quarters	MTD start date
Ending 31 March, 30 June, 30 September, 31 December	1 April 2019
Ending 30 April, 31 July, 31 October, 31 January	1 May 2019
Ending 31 May, 31 August, 30 November, 28 February	1 June 2019

However, for the first 12 months, HMRC says it will not enforce the digital link requirement, to give firms a chance to get used to the new rules, and to put compliant systems in place.

What will the changes mean for you and your salon?

The changes will mean that you will now need to store all VAT-related records digitally. You must use HMRC-approved software to transmit quarterly returns to HMRC’s new API platform which you must be registered to use. You will not be able to continue to use the existing Government Gateway unless you are under the threshold. There are three ways of doing this:

• If your accountant does your VAT returns, they will have MTD-approved software and will do this for you. You should ask your accountant if you will need to change the way you record and supply the information to them in order to comply. If you send an email to your accountant with your VAT records, this is an acceptable digital link as long as your data is then uploaded into API-compatible software at your accountant’s office, for example.
• If you submit VAT returns yourself and use accounting software, you should check with your software supplier if it is MTD compliant and if you need to do anything differently.
• If you submit VAT returns yourself, you can either purchase a full accounting software package or use spreadsheets, which you may already be doing. In this case you will need to purchase some ‘bridging software’ that is API-compatible and approved by HMRC to digitally link the spreadsheets. This is very cost effective and once set up it will link your spreadsheets directly to HMRC.

The Government's official website has a list of HMRC approved software, if the above options don't work for you.

Dispelling the myths surrounding Making Tax Digital

MTD expert Tim Good from Absolute Accounting Software is a lecturer who is currently training accountants on Making Tax Digital. His company has developed a HMRC-compliant bridging software called Excel MTD VAT Filer that links Excel spreadsheets to HMRC. Tim dispels the myths to  ensure your software is compliant with the Government's new rules: Do I have to use special bookkeeping software from April 2019? No. Excel and other digital methods of recording transactions will continue to be acceptable Do I have to send details of all transactions to HMRC from April 2019? No. Only the same data as currently sent to HMRC will be sent under MTD for VAT. Will I be able to continue to use Excel beyond April 2020? Yes. HMRC will continue to allow the use of Excel beyond 2020. Will I have to record transactions digitally every day instead of weekly, monthly or quarterly? No. The record keeping requirements simply require that transactions are recorded digitally before the VAT return for the period is filed. Will I have to record every sale (Cut & Finish, Blow dry, Colour etc) separately? No. You can continue to record the daily gross takings figure rather than individual sales. The Excel VAT Filer is available for £40+VAT. To find out more, watch the demonstration video at www.absoluteexcelvatfiler.co.uk, call 01869 255797 or email [email protected].  Ryan Fox is a salon consultant who provides accountancy services to salons. For more info on his salon accounts service visit www.umbrellaconsulting.co.uk.