It may start to feel like everyone is talking about Making Tax Digital at the moment. However, it is a really important thing for all business owners to be aware of as it will affect every business owner and every business. In this blog post we thought we would talk about the four foundations of Making Tax Digital. To enable you to gain a better understanding of why it was introduced and what it will achieve.
Better Use of Information
Making Tax Digital means that organisations will be able to see the information that is held by the HMRC. These organisations will also be able to check if the details they have entered are complete, up to date and correct. HMRC will then be able to use this information to tailor the services it offers customers. This will be according to their individual circumstances.
Tax in Real Time
With Making Tax Digital, organisations will no longer have to wait until the end of the year, or longer, to find out how much tax they should pay. Instead HMRC will collect and process the information that affects tax as close to real time as possible. This will help prevent errors and stop tax due or repayments owed building up. This should make paying tax easier for business owners.
A Single Financial Account
It is planned that by 2020, HMRC customers will be able to clearly see a comprehensives financial picture in their digital account. This will be very similar to the financial picture they can see through their online banking. This should make it easier for business owners to review their business financially and make better informed financial decisions.
HMRC customers will be able to interact digitally with HMRC staff on days and times that suit them. Digital record keeping software will also be linked directly to HMRC. This will allow business owners to easily send and receive information to HMRC from their own software as and when it suits them.
If you have concerns about Making Tax Digital or would rather bury your head in the sand, then why not contact us now. We can help you understand Making Tax Digital and take away that stress and worry for you.
What does Making Tax Digital mean for your business?
Making Tax Digital allows small to medium business owners to keep online records of their income and expenditure for Income Tax purposes and send quarterly updates of this to HMRC via their payment software app.
If you are a business that is currently keeping your records in a cashbook, on a spreadsheet or on non-Making Tax Digital-compliant software then you will need to make changes. As of April 2019 you will need to change your systems and processes because you will no longer be able to log-in to HMRCs website and key in your VAT return figures.
A few main points to help small business owners understand what Making Tax Digital will mean to their small business;
- All businesses and landlords will be affected by Making Tax Digital
- MTD is compulsory and dependant on your business circumstances will need to start using it in 2018, 2019 or 2020.
- You will need to record all tax affairs digitally and this can either be done by using online accounting software, like Xero accounting software, for example.
- Your accounts team, finance team or your accountant will provide the information to HMRC on a quarterly basis, as electronic information.
- It is expected that MTD should reduce the amount of time, effort and stress it currently takes you to prepare and file your taxes.
- MTD will enable you to get a centralised view of all your tax information, entitlements and liabilities. This means, as a business owner, you will know exactly how much you owe at any point.
While MTD will not make filing taxes any less financially painful, it should be faster and easier to prepare taxes, report taxes and file your taxes.
When should I get everything in place for Making Tax Digital?
While many businesses are holding out until the last minute, we would highly recommend that you do not wait for Making Tax Digital to apply legally for your business, but instead voluntarily comply with Making Tax Digital for your VAT so you are ready and prepared for when it does become a legal requirement for your business.
By getting ahead of the Making Tax Digital deadlines you have the time to change your bookkeeping processes and also get to grips with using the new software. If you choose to change to Xero we would be happy to help you move the business across and we can train you and your team so you can get the most from the Xero system.
Changing accounting software can be tricky so to avoid last minute rushes, panics and headaches we would recommend that you give yourself plenty of time to plan for Making Tax Digital, because April 2019 will be here before you know it.
Looking for business accountancy services
Direct Peak provides a dedicated business tax accountant, who will prepare your annual accounts and tax returns. They will be on hand to answer any tax queries you have.
Your business tax accountant will ensure that the company is set up in the most tax-efficient way and that you are claiming for all the correct expenses to maximise your earnings.
Making Tax Digital
In the United Kingdom, Making Tax Digital (MTD) is a government initiative introduced by HM Revenue and Customs (HMRC) to modernize the tax system. The scheme aims to make tax administration more efficient, accurate, and easier for individuals and businesses by requiring the use of digital record-keeping and online submission of tax returns.
Under the MTD scheme, businesses, self-employed individuals, and landlords are required to maintain digital records of their income and expenses using compatible accounting software or digital tools. These records must be kept in a digital format and be capable of being submitted to HMRC electronically.
The key components of the Making Tax Digital scheme include:
- Digital Record-Keeping: Businesses and individuals are required to maintain accurate and up-to-date digital records of their business transactions, income, and expenses.
- Digital Submission of VAT Returns: Since April 2019, VAT-registered businesses with a taxable turnover above the VAT threshold (currently £85,000) have been required to submit their VAT returns digitally through compatible software.
- Income Tax and Corporation Tax Reporting: From April 2023, self-employed individuals and landlords with annual business or property income above £10,000 will need to follow the MTD rules for income tax. They will be required to maintain digital records and submit quarterly updates to HMRC through MTD-compatible software.
- MTD for Corporation Tax: MTD for Corporation Tax is currently being developed and is expected to be implemented in April 2026. It will require companies to maintain digital records and submit their tax returns using compatible software.
The overall goal of Making Tax Digital is to streamline the tax process, reduce errors, and provide individuals and businesses with a more accurate and real-time view of their tax liabilities. By embracing digital record-keeping and reporting, the UK government aims to improve the efficiency and effectiveness of the tax system.