Making Tax Digital for eCommerce – everything you need to know

Making Tax Digital for eCommerce businesses (and everyone else) is set to come into force this year – revolutionising the way that eCommerce business owners collect and report their tax information. From 1 April 2019 spreadsheets, jotters and (dare we say it) post-it notes are out; online software, real-time reporting and digital records are in. Those failing to comply will be subject to significant penalties and fines. Luckily, we have everything you need to know about making your eCommerce business Making Tax Digital compliant. 

Contents

What is Making Tax Digital?
Why is Making Tax Digital happening?
Who is affected by Making Tax Digital & when does it come into force?
What do eCommerce businesses need to do for Making Tax Digital?
How can eCommerce businesses prepare for Making Tax Digital?

 

What is Making Tax Digital?

Making Tax Digital (or MTD for short) is a UK government initiative bringing eCommerce (and other) businesses into the digital world by changing the way that tax is reported. Specifically, digital records will be mandatory, submissions to HMRC will be quarterly, and tax returns will be filed electronically. Of specific note to eCommerce businesses, following the implementation of MTD copying and pasting financial information between digital platforms is expressly prohibited.

Why is Making Tax Digital happening?

MTD aims to make tax easier, more efficient and more effective for businesses, hopefully reducing the £33 billion tax gap in the process. It will also encourage e-retailers to keep on top of their financial affairs, reducing the risk of tax return errors and associated penalities.

Who is affected by Making Tax Digital & when does it come into force?

If you’re an eCommerce business, turning over more than £85,000 per anum, then 2019 is your year.

From 1 April 2019

All VAT registered businesses with a taxable turnover above the VAT threshold (£85,000) must:
– Keep certain financial records in a digital format
– File VAT returns via MTD-enabled software.

From April 2020

It is hoped that April 2020 will see MTD extended to the:
Quarterly reporting of information
Filing of other taxes (such as income and corporation tax) via MTD-enabled software.

What do eCommerce businesses need to do for Making Tax Digital?

eCommerce businesses exceeding the VAT threshold must ensure that they’re MTD-VAT compliant by 1 April 2019. Specifically, you will need to:

1. Use MTD-enabled software

MTD-enabled software can record and preserve digital records, send information to HMRC and receive information from HMRC.

A list of HMRC approved MTD vendors (including Expandly partner Xero) can be found here, offering a variety of functions. Free software is available but limited, which can be problematic for high-volume eCommerce sellers. Affordable cloud accounting software Xero is a popular choice for online retailers and includes added benefits such as security, automatic tax calculations, payroll functionality, on-the-go accessibility and the ability to import bank transactions.

2. Keeping financial records digitally

Certain financial records (listed here) must be kept digitally. This can be in the same place (on your MTD-enabled software) or in separate locations that are “digitally linked”. It’s important to note that copying and pasting are expressly prohibited.

eCommerce business owners must digitally transfer their sales records, from their sales channel(s), into MTD-enabled accounting software without copying and pasting or manually typing. Multichannel sales software is an affordable solution that does this automatically from any number of online marketplaces and shopping carts to cloud accounting software, in real-time.

3. Submitting VAT returns via MTD

VAT returns will no longer be accepted via post or via the existing Government Gateway tool. Instead, eCommerce businesses must use their MTD-enabled software to submit their VAT return, using the digital records kept.

How can eCommerce businesses prepare for Making Tax Digital?

Let’s be honest, you started up your eCommerce business because you wanted to make money, not study for your accounting exams. While MTD isn’t complicated once you get your head around it, finding the time to get your head around what you need to do can be challenging. Our top tips for eCommerce business owners preparing for Making Tax Digital are:

1. Act now

April 1st isn’t that far off. Start putting plans in place now, and get to know your new systems before you have to.

2. Run two processes

If you’re new to cloud accounting, you might want to run it alongside your traditional method of accounting during Q1, ensuring that it’s capturing everything and does everything that you want it to.

3. Do it all

While the requirement for digital records only applies to VAT-relevant data, running two processes will be hard work and arduous. Take the leap and go fully digital to save time, money and stress.

4. Trial multichannel management software

Speaking of saving time, money and stress, multichannel management software offers a simple solution to digitally link your online marketplaces and shopping cart data to your accounting software. Add to that bulk listings, order management, live inventory management, reporting and shipping carrier integration, and you won’t know what to do with all of your new time.

5. Get help if you need to

If the topic of tax really is taxing, get the help by speaking with experts (such as Expandly and Xero), using assisted setups and requesting software demos. Don’t get caught out when help is out there.

MTD – the push that eCommerce business owners need

At Expandly, we think that MTD is the push that eCommerce business owners need (read more about that in our blog). Our industry is one of the most cutting-edge in the world, yet many are still using outdated, time-consuming and error-prone accounting methods. MTD brings significant benefits that will streamline businesses, creating more time to grow.

For more information about Making Tax Digital, visit the government’s website here.

For a free 7-day trial on how multichannel management software can help the process, click here.