A great many aspects of modern business have become streamlined and paperless thanks to cloud technology. And within the next few years, the government plans to add tax to that list with Making Tax Digital (MTD).
In a move that will bring about the end of paper accounting for millions across the UK, HMRC will deliver a digitally advanced, efficient, and modernised tax system to rival the best the world has to offer.
Starting from April 2019, businesses above the VAT threshold will be required to set up a digital tax account and file their returns online every quarter. But even if your business isn’t likely to exceed that threshold by that time, you should still make sure you’re prepared for the inevitable transition to digital tax returns.
In this post, we briefly explain the motivation behind MTD, how it will affect you, and when the change will take place.
Why is HMRC ͚Making Tax Digital͛?
The four core reasons behind Making Tax Digital are as follows:
1. To facilitate an efficient and effective use of information
Instead of consistently providing HMRC with the same information year after year, this approach to taxation will be smoother and smarter. HMRC will gather information from elsewhere (such as employers, banks, or other government departments) and you’ll be able to log into your account and view and update your details.
HMRC will then use this information to tailor its services according to your circumstances.
2. To provide access to real-time tax
With the introduction of MTD, you won’t need to wait until the year-end to discover how much tax you owe. HMRC will seek to collect and process information in as close-to-real-time as possible to give you an accurate and up-to-date view of your liabilities.
3. To provide taxpayers with a central financial account
Currently, you don’t have a central account where you can see a snapshot of your liabilities and entitlements. MTD will change that. By 2020, you’ll be able to log into your account and view a comprehensive picture of your personal tax situation – similar to online banking.
4. To interact digitally with customers
If you’ve ever been left on hold when calling HMRC, you’ll know just how frustrating it can be when trying to have a question answered or a problem solved. MTD will transform how you communicate with HMRC by giving you access to digital information, advice, and support via web chats and secure messaging. You’ll be able to ask and answer questions on your terms, rather than give up a morning or afternoon listening to the jazzy hold music as you’re passed between departments.
How will Making Tax Digital impact me?
Making Tax Digital will impact businesses and individuals alike. And, as outlined in this post by Xero, the good far outweighs the bad where MTD is concerned.
In short, you will be required to send a summary of your income and expenditure once a quarter via your digital tax account.
However, if your business is turning over less than £10,000 annually, you will be exempt from MTD.
And to begin with, only businesses with a turnover above the VAT threshold will be required to use the Making Tax Digital for Business system, starting in April 2019. If this applies to you, and you’re unsure if your current accounting system complies with MTD, we cover that query in this post.
When does Making Tax Digital happen?
Making Tax Digital is already happening, with a number of small pilot tests underway.
The following milestones are fast approaching:
- Early 2018 – Live pilot of Making Tax Digital for VAT begins.
- April 2019 – Businesses with a turnover above the VAT threshold will be mandated to keep digital records and submit quarterly returns for VAT purposes via their accounting software.
- April 2020 – HMRC will look to expand the scope of Making Tax Digital, assuming the system is working as expected.
Don͛t Get Left Behind – Go Digital Now
Saint & Co has been around long enough to have experienced many of the major shifts in UK tax administration, and Making Tax Digital promises to be an exciting and welcome change to our relationship with tax.
We’ve kept our finger firmly on the pulse of this developing situation, and we can help you prepare to make the switch to keeping digital tax records.
Simply fill out our contact form, or call us on 01228 534371 to get started.