Home Business News Making Tax Digital here’s what you need to know

Making Tax Digital here’s what you need to know

by Mark Fitt Political Journalist
20th Mar 19 12:00 pm

Making Tax Digital (MTD) is a major change to the running of the UK tax system. It will affect how businesses, agents, and individuals maintain their accounting and tax records as well as how they submit VAT returns to HMRC.

HMRC’s vision to digitalise the tax system will start with MTD for VAT from April 2019. Other components of Making Tax Digital including income tax and corporation tax, have been placed on hold until April 2020.

This delay is due to the pressures facing government from Brexit and, as a result, Making Tax Digital rollouts for Income and Corporation Tax have been delayed beyond April 2020.

As estimations suggest only 13% of London firms have signed up to the early-access of MTD, this temporary delay might be considered a good thing. However, if any firm’s VAT-able turnover is above the VAT threshold from April 2019 then it will no longer be possible to submit VAT returns manually via HMRC’s website. It must be done by using MTD compliant software. Because of this major change businesses need to prepare now.

From April 2020, MTD will also be compulsory for VAT-registered businesses with a taxable turnover below the VAT threshold.

Why is HMRC doing this?

HMRC’s Making Tax Digital initiative will revolutionise the UK tax system and ultimately bring an end to self-assessment.

The main aim is to make tax administration more effective, efficient, and easier, for taxpayers through the implementation of a fully digitalised tax system by 2020, whilst also reducing HMRC’s overheads for managing tax affairs.

As filing via the existing HMRC portal will no longer be permissible, businesses will need to use MTD compliant software. Fortunately, The UK government website has a page containing a number of compatible packages.

How does this benefit my business?

Making Tax Digital (MTD) can seem challenging, but it actually has the potential to add huge value to businesses and their accountants.

In this digital world it makes sense to use technology to handle taxes. Instead of worrying about the probable drawbacks, accounting professionals should focus on the benefits that MTD will bring. Getting ready for MTD as soon as possible means that you will be able to start benefiting from it earlier.

Some good reasons to embrace MTD include:

  • MTD will be effective as tax recording will be more accurate. This provides fewer opportunities for errors, miscalculations, and fraudulent activity.
  • MTD will be time saving as the process will be fast and more automated for HMRC as well as for the businesses.
  • It will be easier for businesses to record and file tax returns.
  • Communications with HMRC will become easier, as both the business and HMRC will have a complete overview of all taxes in one place.
  • Cloud book-keeping software gives great functionality via bank feeds, expense, mileage trackers, and phone apps. This means less time will be required for record keeping. Using a cloud-based system to comply with Making Tax Digital is unlike traditional desktop software that is installed locally on one computer.  This facility allows the opportunity to access online accounts from any location as long as there is an internet connection, it also offers you access to information from a laptop, tablet, or smartphone. Therefore, this provides the opportunity to make quick business decisions and respond instantly to upcoming issues.

What will happen if I’m not compliant when the deadline comes?

There is already lot of discussion about the risk of penalties where a problem with introducing new processes and systems results in late filing, late payment, or other breach of the regulations due to the introduction of Making Tax Digital (MTD).

HMRC has stated they’ll use a “light touch” approach. They have also mentioned if businesses take reasonable steps to comply with MTD they won’t issue penalties in the first year. This means businesses should attempt to sign up and use software. If they have problems filing, they should still make payment.

The penalties for not making MTD submissions on time will be points based. For every late submission a point will be issued and after four late quarterly submissions a penalty will be issued. Points will be wiped after four compliant submissions. The points systems will be separate for each tax, although this may be subject to change before it is implemented.

Late payments will be dealt separately. If the VAT payment is late by more than 15 days, a 2.5% penalty will be imposed, and after 30 days doubling to 5%, with daily penalties charged thereafter.

This article was provided by Stonebridge Pay an accountancy firm with more than 20-years’ professional experience. The organisation created this piece to help businesses and employers become MTD complaint.

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