Home Business Insights & Advice Making tax digital has begun: seven important things you need to know

Making tax digital has begun: seven important things you need to know

by Sponsored Content
1st May 19 2:32 pm

In case you didn’t know, Making Tax Digital (MTD) is the UK government’s initiative designed to make tax administration faster and easier. It’s the biggest overhaul of the tax reporting system in a generation. Ultimately, it will change a great deal about how businesses record and report their taxes.

So, in a nutshell what does Making Tax Digital mean? Essentially,

  • All tax will eventually be reported online through online software or an app
  • Tax will be reported quarterly
  • It’s compulsory
  • It affects all businesses and landlords

MTD promises to make life easier for businesses, landlords and HMRC. Significantly, it will drastically reduce the chances of human error, saving the Exchequer as much as £9 billion every year. Businesses also benefit from being able to view their tax affairs and how much tax they owe in real time, making strategic planning easier.

Getting ready for MTD is prudent. So, what exactly do businesses need to know?

1. Making Tax Digital has already started!

The process of Making Tax Digital has already started. The first part of the scheme rolled out digital VAT reporting for all VAT-registered businesses with a taxable turnover above the VAT threshold from 1st April 2019. This essentially means from now on businesses meeting the criteria are required to keep records digitally and use software to submit returns for VAT.

Niche and complex businesses have a postponed MTD for VAT date, which is currently proposed for October 2019.

2. Annual tax returns are being axed

Annual form filling for tax returns will soon become a thing of the past for businesses and their accountants. Ultimately, MTD will mean the end of the annual tax return as we know it, with quarterly returns filed digitally via a business’s digital tax account.

Incidentally, the quarterly return doesn’t mean you have to complete more forms, it simply means you will need to provide regular updates on your tax position online. HMRC don’t require all digital records to be held in one place or within a single program, but they must be digitally linked.

While businesses won’t have to keep digital records or update HMRC digitally for other taxes until at least April 2021, many accounting firms are recommending to their business clients that they start making the transition now. Chartered Accountants Wellden Turnbull explain what these changes will mean to your business in the video below:

3. Tax submissions will need to be made through compatible software

When MTD is fully operational all tax returns will need to be made online through HMRC-compatible software. Even if your business isn’t currently required to report VAT through the initial MTD cohort, digital tax reporting will become mandatory in the near future. It’s a good idea to start thinking about adopting accounting software that will prevent any future complications.

HMRC have compiled a list software providers offering programs that are compatible. All of the main players, such as Sage, Xero, Freshbooks and Quickbooks offer easy-to-use software that is HMRC compatible. Software programs will need to be digitally linked for the transfer of data to keep the information journey digital.

See more information on the best accounting software of 2019 here.

4. Documents have to be stored digitally

Under MTD, accounting records will need to be maintained in spreadsheets or in an accounting software program, but paper records will cease to meet the legal tax requirements. All accounting records will need to be stored digitally, so any relevant paper documents (such as invoices and receipts) will need to be scanned.

5. Real-time tax updates

Once MTD is fully operational HMRC will be able to provide businesses with information on their tax position as close to real time as is possible. This will help businesses to plan better and avoid big tax bills building up. Businesses will be able to see throughout the year how much tax they owe, rather than wait until the end of the year after the annual tax return.

6. MTD doesn’t mean paying more taxes

Although MTD will mean more reporting deadlines, it won’t mean businesses have to pay more tax than they usually do. The new digital reporting will help to eliminate errors and could help businesses to avoid unexpected tax bills and unnecessary fines.

7. Some businesses are exempt

All individuals who are self-employed, unincorporated businesses with an annual turnover below £10,000, charities, community amateur sports clubs, and possibly insolvent businesses are all are exempt from MTD. Certain individuals may also be made exempt from MTD if they cannot go digital due to their age, religion, a disability or remote location.

Note that HMRC should write to your business to tell you when you need to sign up by, but be aware that enrolling to MTD does not happen automatically. Some businesses are choosing to join pilot schemes to test out the MTD system and that isn’t such a bad idea.

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