Real MTD information for the self employed independent business owner
1st April saw the launch of Making Tax Digital for VAT. With it the panic set it for many as to what this actually means in terms of the increased bookkeeping workload for small businesses with straight forward accounting needs.
On the HMRC web site, Mel Stride MP, Financial Secretary to the Treasury, claims:
“Delivering Making Tax Digital for VAT is the first step toward our ambition to create one of the most digitally advanced tax authorities in the world. The rules ….. will give businesses more control over their finances, allowing them to spend their time focusing on innovation, growth and the creation of jobs.”
Far be it from cynical me to discredit this statement. I’m more that sure many will have their views on why the hard working one person self employed business owner has the need or desire to focus on innovation, growth and the creation of jobs. But let’s put that aside for now and focus on the practicalities of how small independent business owners can Make Tax Doable.
In an ideal world every small business owner would buy and implement Cloud Accounting Software. Many may benefit from the functionality that such systems offer. However equally many will not.
Small business owners aren’t stupid! They know what they are doing. Many have been doing it for years and paying the right amount of tax.
Often small business owners have very straight forward accounting needs. Their simple business affairs mean that they are well able to control their finances, keep accurate records and budget for their tax bill without the need for sophisticated and expensive systems.
A sledge hammer to crack a nut
Despite this HMRC insist that regardless of size of business, sophistication of business operations, complexity of finances or expertise of the business owner every VAT registered business with a turnover in excess of £85,000 must follow the same set of rules.
So how can the small business owner take the rules that the largest VAT registered entities have to follow and make them work for them?
Here’s a few suggested tips and hacks to help the hard working small business owners work through the Making Tax Digital minefield.
Making tax Doable Tips & Hacks
- Spreadsheets are digital records – so you don’t have to invest in expensive systems or change what may already work for you
- Spreadsheets can be linked together to make a Digital chain – a standard feature of excel (although cut or copy & paste isn’t deemed to be a digital link)
- A scanned copy of an invoice is a digital record
- A list of gross daily takings in a spreadsheet is a digital record
- A list of your out of pocket expenses or sundry invoices in a spreadsheet is a digital record
- Consolidation of all your VAT accounting data in a series of linked spreadsheets is a digital record
- Filing your consolidated VAT accounting data via a linked Bridging Software Solution complies with Making Tax Digital rules
- Bridging Software is an acceptable long term solution, unless and until requirements change (ignore the incorrect rumour that Bridging Software cannot be used beyond April 2020. It can!)
- A quick hack to load gross daily takings or other similar spreadsheet data into Making Tax Digital Compatible software is to format a csv file into a similar structure as a bank statement load file and set up a new bank account in the accounting system using the bank load functionality to import the spreadsheet data
Banish Manual Records
What Making Tax Digital does do is banish manual records for those VAT registered (over £85,000 turnover) businesses who still keep records that way; don’t shoot the messenger – that’s an HMRC rule! So if you’re still using an accounting book or ledger then I’m afraid you will have to jump into Digital.
Ask your bookkeeper or accountant for help but if they start to rack up the £pounds in terms of cost of implementation then find someone who can take a more common sense approach to meeting the new rules.
There is a lot of false information being brandished around about Making Tax Digital.
Full guidance from HMRC on Making Tax Digital is given in their VAT Notice 700/22: Making Tax Digital for VAT which can be found at https://www.gov.uk/government/publications/vat-notice-70022-making-tax-digital-for-vat/vat-notice-70022-making-tax-digital-for-vat
If someone claims that Making Tax Digital works in a certain way ask them to show you where that is covered in this HMRC Notice.