The Making Tax Digital (MTD) initiative aims to implement a fully digital tax system across the UK, making it easier for taxpayers to communicate with HMRC, calculate tax correctly and pay their liabilities on time.
Set up by the UK Government, the MTD scheme has already started rolling out across various areas of HMRC. For example, we’ve seen the launch of digital tax accounts, where every small business owner and individual taxpayer has access to an online space where they can check records and manage their details.
For many businesses, MTD can be daunting, especially for those who are traditionally more paper-based.
We’ve rounded up a basic guide to MTD, including the key stages that have been announced by HMRC.
Who will be affected?
Eventually, MTD is going to apply to almost every type of taxpayer, whether you’re an established business, sole trader or landlord.
The plans for the future of MTD are currently quite vague.
However, what we do know is that from April 2019, companies with a turnover above the VAT threshold will be required to keep digital records and submit quarterly updates through their accounting software for VAT purposes.
It’s important to note that the smallest businesses – those with an annual turnover of less than £10,000 – are currently exempt from the scheme.
What will actually change?
The biggest culture shock is going to be the elimination of the humble annual tax return.
Instead of filing one form every year, taxpayers will be asked to send frequent summaries of their income and expenditure at least quarterly. Businesses will also have the option of submitting more often if they wish to do so.
Whilst filling out one huge tax return is a common bugbear for businesses, sending HMRC even more updates might sound like a bit of a headache.
Nevertheless, HMRC has promised that the new system won’t mean a fully-fledged, in-depth return four times per year, just small and manageable updates.
They have stressed that the benefits of MTD significantly outweigh the cons as the scheme will provide every business with a real-time view of their affairs, which means taxpayers will know where they stand and be able to budget more successfully.
What does this mean for me?
The organisations that MTD applies to will need to use digital tools – such as accounting software and applications – in order to submit their accounts to HMRC.
We’d recommend getting to grips with this technology sooner rather than later. Switch to a cloud-based platform like Xero, FreeAgent or QuickBooks and find out how they work, and how you can incorporate them into your everyday business activities.
HMRC have said that spreadsheets can be used in some circumstances, but a piece of software will need to be used to bridge the gap and submit your information.
The Government has also released a list of software suppliers that support MTD for VAT, which includes some of the most popular applications.
It might be tempting to avoid digital until it knocks at your door and becomes compulsory, but by finding the software that works for your business, you can save yourself a lot of pressure later down the line.
The key things you need to know.
- Making Tax Digital (MTD) is a UK government scheme aiming to digitise the way we communicate with HMRC.
- From April 2019, all businesses earning over the VAT threshold will be required to submit quarterly updates related to VAT via a digital accounting software.
- Eventually, all taxpayers will be affected by MTD.
- Make the switch to digital accounting software today.
If you want to find out more about Making Tax Digital, don’t hesitate to get in touch with us today.