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What is Making Tax Digital (MTD)?
Making Tax Digital is a government initiative to make the UK tax system more digitally advanced by requiring businesses and landlords to keep their records in a digital format.
The government states that over £9 billion is lost to the exchequer each year due to avoidable mistakes. They believe the use of digital software products will improve accuracy as well as being more effective, efficient and easier for the tax payer.
So what is Making Tax Digital for VAT?
The first phase of MTD begins on 1st April 2019 with MTD for VAT. From this date all VAT registered businesses with a taxable turnover above £85K will be required to keep digital records and to submit their VAT return using MTD compliant software. The government portal will no longer be available to file VAT returns direct for businesses within the MTD for VAT regime.
What MTD Compliant Software is available?
HMRC have published a list of all software it considers to be MTD compliant. You can view it here: https://www.tax.service.gov.uk/making-tax-digital-software
Software solutions are available from Xero, Freeagent, Sage and Quickbooks as well as many others.
Businesses wishing to continue to use spreadsheets will be able to but will need to use a bridging software solution to file their VAT return.
What is next for Making Tax Digital?
The next phase of Making Tax Digital for Business will involve Income Tax and Corporation Tax however after listening to feedback from small business and Accountancy Professional Bodies the government announced in the Spring Statement that this phase would be delayed until April 2021 at the earliest.
On the 15th August 2016, HMRC published one of their most controversial consultation documents in recent times, Making Tax Digital!
The proposal put forward by HMRC is that from 2018 all businesses, the self-employed and landlords will be required to use software to maintain their business records and transmit this information to HMRC on a quarterly basis, rather than once a year on a personal self-assessment tax return as currently happens.
Why is tax going digital?
HMRC’s vision is that tax will operate more closely to ‘real time’ and that we will be in a position where a taxpayer should never have to tell HMRC information that it already knows. In other words, information that HMRC needs will be automatically uploaded to a digital account. All tax information will then be in one place bringing an end to the tax return. Of course, this ‘real time’ account will also mean that tax can be paid based on business activity during the year rather than on estimates based on the previous years trading.
What are the key issues to consider with making tax digital?
• Digital skill – Do all businesses have the digital awareness to be able to implement making tax digital, many may struggle.
• Cost – The cost of implementing a new accounting system can be significant particularly to the micro business.
• Time – Does a small business proprietor have the time available to be implementing a new accounting system particularly when they already have one in place (maybe excel spreadsheets) that is working sufficiently well.
• Additional work – Will businesses now need to provide HMRC with information four times a year rather than once?
Whatever happens with Making Tax Digital we here at Stafford based Accountants Cheadles are ready and waiting to help. We are partnered with cloud accounting software provider Xero to be able to offer our clients the benefits of the cloud for simpler processing of the quarterly tax statements. We also have a range of other accounting solutions available so that our clients are able to choose the best and most cost-effective solution for them.