As humans, we often become attached to what works for us, and, as a result, we can be reluctant to embrace change. However, according to HMRC, the days of receipt hoarding and Excel sheets should be behind us, with efforts to start ‘Making Tax Digital’.
Making Tax Digital is a Government scheme encouraging businesses to use accounting software in an effort to modernise the UK tax system. MTD-compatible software is beneficial for managing tax affairs more efficiently while improving data security and reducing the risk of financial penalties.
This blog looks at what MTD-compatible software is, what software is best for you and how it can benefit your business.
What is Making Tax Digital (MTD)?
Making Tax Digital is an HMRC initiative that came into effect in 2019 to encourage UK businesses to switch to a digital accounting system. It requires business owners to use MTD-compatible software, keep digital records and update their systems quarterly.
The Making Tax Digital scheme aims to make tax more straightforward and efficient to help close the ‘tax gap’.
If you have a VAT-registered business with taxable turnover more than the VAT threshold, then, as part of the HMRC MTD scheme, you will need to submit all VAT returns using MTD-compatible software. However, VAT-registered businesses with a taxable turnover under this threshold can also opt into MTD. Eventually, Making Tax Digital will be rolled out to other areas of accounting, including income tax and corporation tax.
If you are wondering how Making Tax Digital might impact your business, get in touch with us today for some friendly advice. We are specialist Making Tax Digital Accountants based in Nottingham, with clients locally and across the UK.
What are your MTD duties?
As a small business or limited company, you may wonder how MTD impacts you and your everyday business accounting. Currently, VAT-registered businesses who meet the criteria or companies who have voluntarily opted into MTD are required to do a few things to stay MTD-complaint, including
- Keeping digital records
- Submitting quarterly updates
- Providing HMRC with access to records
- Using MTD-compliant software
You can learn more about your MTD duties on the HMRC website, but essentially, you just need to register if you meet the necessary criteria and use MTD-compliant software.
At Archimedia, we only use the latest accounting software for our services, and we can talk you through all you need to know about being MTD-compliant so you can be sure that your records are safe and secure.
What accounting software is available for MTD?
For accounting software to be MTD compliant, it must be able to create and store records digitally, send quarterly updates, calculate business income and work in line with HMRC’s API platform.
Cloud accounting software
There are a handful of cloud-based accounting software packages that are available for businesses looking for MTD-compliant software.
Cloud accounting software is essentially any type of accounting software that is hosted on the cloud. This means that your financial data is stored remotely and can be accessed anywhere by you or your accountant. It is excellent for accessibility, security and scaling your business, as you can tailor the software to your business’s current situation.
At Archimedia Accounts, we recommend Xero cloud accounting software for more streamlined and professional accounting. It is fully MTD compliant and is HMRC-approved for VAT and income tax returns.
Being one of the most integrated cloud-based apps on the market, Xero has all the capability you need – connecting numerous third-party software. It’s also very user-friendly and easy to set up. What’s great is that if you aren’t yet MTD-registered, you can still use Xero in the meantime, and then when you do need to register, all of your documents and records are already available.
How to choose the right accounting software for you
Choosing an accounting software package is important, but it is a decision that can be made relatively simple. Ultimately, it is down to what you prefer in terms of accessibility, MTD compatibility and price. Doing your research and speaking to an experienced accountant will help you make your decision more easily.
Our team are certified Xero accountants, so we almost always recommend Xero for accounting and bookkeeping needs. We can help you with all you need to know about Xero, whether that’s how to use Xero for bookkeeping, sales and invoice support or anything else. We also have specialist bridging software, so we can still support you if you aren’t yet using online accounting software (or an MTD-compatible one).
If your business is still relatively small, then you may consider using Excel and bridging software packages to submit your VAT return to HMRC via Making Tax Digital. However, we strongly recommend using Xero to set the foundations of good accounting practice.
Get help with Making Tax Digital from Archimedia Accounts
At Archimedia Accounts, we are a team of professional accountants here to help you. With over 30 years of tax and accounting experience, we have helped businesses navigate the various tax legislation challenges and changes over the years.
Don’t let MTD be a challenge. With the help of our experienced accountants, you can turn it into an opportunity to save time and money. We will help you implement the most efficient accounting software for Making Tax Digital and provide you with further support in all areas of your business finances.
To learn more about how we can help you with MTD software or our other accounting services, then contact us today and arrange a free consultation.
Conclusion
Using accounting software compatible with Making Tax Digital (MTD) is essential for staying compliant with HMRC and beneficial for setting your business up for success. You can benefit from improved tax reporting, reduced risk of errors, and a better insight into your company finances.
FAQs
To learn more about why it’s important to use accounting software for Making Tax Digital, read some of our most frequently asked questions below.
How do you register for Making Tax Digital?
As of November 2022, all VAT-registered businesses should already be signed up for MTD for VAT. The next stage is Making Tax Digital for Income Tax, which comes into effect from April 6 2026. You can check eligibility and when to sign up by visiting the Gov website.
If you want more advice or support in signing up for MTD and managing your tax liability, you can talk to a professional accountant who can guide you.
Can I use Excel for Making Tax Digital?
Excel can be used for Making Tax Digital, and while we only recommend this for much smaller businesses, if you are already happy with how it works, then there’s no need to change just yet. However, you will need to consider what bridging software you’ll use.
Bridging software is used to transfer your VAT return figures and other financial data over to HMRC’s new method of submitting VAT returns to keep you MTD-compliant. A list of bridging software packages recommended by HMRC can be found here.
What happens if I don’t register for MTD?
If you meet the standard requirements for Making Tax Digital and choose not to register or comply with legislation before the correct deadlines, then you may face penalties from HMRC. Speaking with your trusted local accountant and understanding what MTD software you can use will help reduce the risk of penalties.
