Making Tax Digital – Everything You Need to Know as a VAT Registered Business
Making Tax Digital – What is it?
Making Tax Digital (or fondly referred to as MTD across the Web) is an initiative by HMRC to make tax more effective and reduce errors. It means that any businesses that are VAT-registered and are above the threshold of £85K a year will have to keep digital records and submit VAT returns using compatible software. MTD comes into effect on 1st April 2019.
HMRC says “our ambition is to become one of the most digitally advanced tax administrations in the world. Making Tax Digital is making fundamental changes to the way the tax system works – transforming tax administration so that it is: more effective, more efficient [and] easier for taxpayers to get their tax right”
Why does it affect businesses?
It is hoped that MTD will close the tax gap figures to ensure more businesses can submit their tax returns with less difficulty and mistakes. Mistakes made on tax returns can cost the Exchequer over £9 billion a year.
The goal is to improve how businesses process their tax. Moving tax to a digital landscape will:
• Make you more effective – by reducing mistakes, allowing for more accurate recordings and preventing any miscalculations or fraudulent activity
• It’ll be easier – when armed with the right software, it will make it a lot easier for a business to record and file their returns online
• Make you more efficient – when you have the correct software, the whole tax filing process will be much faster and increasingly automated for a business. Which saves everyone, from the business’ accountant to the HRMC processing team, time and money
• Keep everything in one place – all your records will be stored in one core place, and will be accessible through your digital tax account. This allows you to look at your tax returns for any year, at any time. If you’re currently relying on a paper-based system, whereby tax records are stored in folders, transitioning to a digital approach is likely to enhance the efficiency of your system and reduce the risk of confidential data being misplaced or stolen
Digital tax accounts
These are accounts that bring together a taxpayer’s details in one place, so a taxpayer can see an overview of all their information at-a -glance, inlcuding tax affairs, tax calculations, new payment options and opportunities to register for new services. These accounts replace tax returns and will affect millions of businesses and individuals.
What you need to do
Know if you meet the criteria! If your business is over the threshold of 85K, the 1st April will certainly be an important date for the diary. Need an overview of the VAT Notice for eligible businesses? Check our resource list at the end of the blog.
What’s the deal with MTD for income and corporation tax payers?
For both income and corporation tax payers, MTD actions have been delayed until April 2020 at the earliest, due to feedback to HMRC about the pace of changes.
Some great resources
• We are hosting information days in Summer 2019 for our Khaos Control Champions, and will be including talks on Digital Tax and what you, as a business, need to do to be ready before the deadline. If you’d like to know more about our Champions program, please look here.
• VAT Notice from HMRC, detailing the rules for Making Tax Digital for VAT and the information you need if you’re eligible for the tax switch up.
• While we’ve tried to cover the basics here, you may have some more questions. Check out Thomson Reuters for useful FAQs and information, especially if you’re an income or corporation tax payer.
• Are you an accountant or bookkeeper? Check here.
• Are you a small business? Check here.