Making Tax Digital (MTD) officially started this year and represents the first step towards digitalising the UK’s tax administration HRMC. The aim for MTD is to streamline various tax processes to make them quicker and more efficient for businesses and HRMC, with digital software being used to achieve this goal and make the tax administration one of the most advanced in the world.
MTD applies to VAT-registered businesses that have a taxable turnover that meets or exceeds the current threshold of £85,000. In the coming years, MTD will apply to other forms of tax including self-assessment and corporation tax, so it’s important for all businesses and sole traders to be aware of when MTD applies to their tax returns.
For now, VAT-registered business must ensure they use MTD software to store and file their tax records and file their taxes. Whether you’re a VAT-registered business or accountancy firm working on behalf of such a business, it’s essential that you use MTD software for all current and future tax processes.
Here’s some tips for choosing the best MTD software:
It Must Be Compliant
While an obvious statement it’s still important to choose MTD compliant software – you don’t want to buy software that meet the current requirements for MTD!
The software needs to offer various features to be MTD compliant, including being able to store and preserve all digital tax records, produce VAT returns from digital records, filing VAT returns to HRMC, and using an application program interface (API) platform to send and receive digital tax data and other applicable data to HRMC.
You can either use a single software solution that offers all these functions or use serval systems together. Companies using practice management software may require several types of MTD compliant software that allows them to store and record both tax and patient data.
Understanding the Different Software Options
Two main MTD software options are available for businesses – cloud-based and desktop-based. Both have their benefits so it often depends on the nature of your business when choosing the right type of software.
For example, cloud-based software stores all data in an online network known as the cloud. Because it’s always connected to the cloud, you can access the software and all its data and functions from any location using various devices (laptop, smartphone, tablet,) making it appealing for larger businesses and accountancy firms dealing with high volumes of VAT tax.
Cloud based MTD software can also streamline countless processes through automation, helping to save time and resources and increase productivity.
Desktop MTD software is installed directly onto a desktop computer where all subsequent tax data is stored. Because all data is stored on a physical device, you will need to make backups of the data and the only way to access the software using on-site computers.
While a cheaper option, desktop software does need to be manually installed and maintained, so IT departments may need training on how to do so.
Bridging Software is Another Option
If you’re unsure of choosing an entirely new software package for MTD, then consider using bridging software as an alternative.
As the name suggests, this software is designed to help bridge the gap between older software and MTD software, with bridging software being combined with current systems to make them MTD compliant.
This removes much of the complexities of installing and learning a completely new VAT software and is especially appealing to smaller enterprises that are cautious about committing to a new software platform. You can even use bridging software with spreadsheets to make them MTD compliant.