Making Tax Digital: What Does It Mean and Will It Affect You?
You may have heard about Making Tax Digital (MTD) and know exactly what it is. Or perhaps you have limited knowledge on the matter and want to learn more. That's why we're here, to run through the fundamentals of MTD, and how it'll affect you.
So, what is Making Tax Digital?
Good question! Making Tax Digital is a government initiative to make it easier for individuals and businesses to do their taxes correctly, and keep digital records rather than paper documents.
As HMRC have said, it's their goal to become digitally advanced, hence the transition to digital records and their efforts to make the tax process more effective and efficient.
The reasoning behind MTD is to bring taxes into the 21st century, and have a simpler and more streamlined approach to submitting information and keeping records.
What's currently happening with MTD?
We're still in an early transition period however, the MTD service has already been introduced to VAT registered businesses. It is mandatory for businesses with a taxable turnover to submit their VAT returns using MTD compatible software. This is a significant step towards digital record keeping and is currently in place for businesses that meet the VAT threshold.
HMRC are also trialling MTD with Income Tax. There are businesses currently keeping digital records using compatible software, and reporting back to HMRC to help develop the system.
They do have voluntary sign-ups available for this trial via the gov.uk website that businesses may want to consider. Joining the Income Tax pilot will help you prepare, and make the coming mandatory transition much easier.
It's the same for landlords and the self-employed - you can voluntarily opt into the MTD Income Tax pilot to keep digital records and send updates to HMRC.
You'll have the option to use the software instead of filing a self-assessment form. This also means you'll see the estimated tax owed without having to wait until the end of the year. Again, it's all an effort to make tax an easier and more efficient process.
To find out more about MTD Compatible Software and finding one suitable for your business, read our full blogpost on the topic.
It's all happening too fast.
Agreed that it's a lot to take in and businesses will need to approach this carefully in order to be fully prepared when the time comes.
Thankfully, the government understood that MTD would be a strenuous change for some businesses, and announced to slow the pace of the transition. While some businesses with complex situations have until October 2019 to start keeping records for their VAT returns, the majority of businesses are already using MTD compatible software as of April 2019.
The government also announced that they would be focusing on supporting businesses with the transition and that MTD for taxes other than VAT would not be mandatory until approximately April 2020.
What are the benefits?
Other than making taxes more manageable and stress-free, it will also help individuals, businesses and HMRC save precious time and money.
With this new initiative, it means people can file their taxes correctly the first time and eliminates mistakes that cost £9 billion a year.
As previously mentioned, you'll get an estimate of the tax you owe throughout the year, instead of having to wait for an annual report. This will help you plan and make crucial business decisions using your digital records, and make crucial business decisions
All in all, Making Tax Digital provides more accuracy with the ability to send information to HMRC from your digital records, and ultimately, cut down the number of costly mistakes. It also means that taxes are less time-consuming, and gives businesses more control over the amount they'll be paying.
We hope you are now well informed on the subject of MTD and what it means for you. HMRC are implementing a significant change but are rightly providing support for businesses, as well as running pilots in order to test and develop the system.
MTD may have been implemented in the case of VAT, but there is still time to prepare while Income Tax pilots are underway and the 2020 deadline approaches.
We'd like to know what your thoughts are on Making Tax Digital. Do you have any concerns, or are you in favour of these new changes?