You’ve probably heard the phrase “making tax digital” – but what does it mean, and how does it affect your business? MAKING TAX DIGITAL (MTD) is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs
HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world. Making Tax Digital is a major step towards that, making fundamental changes to the way the UK tax system works – transforming tax administration so that it is more effective, more efficient and easier for taxpayers to get their tax right Of course, the majority of taxpayers do want to get their tax right but the latest tax gap figures show that regardless of this, avoidable mistakes cost the Exchequer over £9 billion a year. The major change to the system is that a business owner will no longer be able to simply log in and type in their VAT figures onto HMRC’s website – which is what 71 per cent of businesses currently do. Instead, all data must be managed electronically via uploads from an accounting software package to HMRC’s system – but HMRC will not be developing their own in-house software for this, so businesses will have to rely on software solutions that are currently on the market, such as Quickbooks, Xero or Sage.
How will MTD benefit me and my business?
Businesses and individual taxpayers will have 24/7 access to their digital accounts and a complete view of their tax liabilities/ entitlements, helping them to make decisions about budgeting, investing and growing.
Other benefits of MTD to small businesses include:
- Reduced likelihood of errors – due to less manual entry
- More efficient management of business affairs – via prediction tools to inform businesses about their future corporation tax liability, allowing better cash flow management.
- Minimal mistakes – thanks to the “help” functionality built into many commercial software products, coupled with tools to identify anomalies and propose corrective action taken prior to submission
- No hidden surprises – as “on the go” cloud based accounting means transactions are recorded in real time helping you keep tabs on your expenditure
- Reduced risk of missed deadlines and penalties – thanks to electronic reminders
- Better use of your precious time to avoid data entry – thanks to automated bank feeds straight into your accounting software and clever apps that can track and record all of your business expenditure….
When is this happening?
MTD is being rolled out to VAT first, and for businesses with a turnover above the VAT threshold (currently £85,000) there is a mandatory start from 1st April 2019 – from this date, you will need to keep a digital record of all VAT transactions and submit VAT returns using MTD compliant software. MTD will then roll out to other taxes, and by the end of the 2020/21 tax year the way that all businesses, including landlords, interact and liaise with HMRC will change beyond all recognition with all taxes being managed digitally.
What will it cost me?
Expect some one-off costs during the transition phase – for example, you may need to make upgrades to existing hardware and software and spend time on both setting up new software and reviewing your existing processes, as well as training staff.
How can my accountant help?
Evans Entwistle is well prepared for MTD, and so if we handle your VAT affairs, we will manage your transition to MTD seamlessly – and if you require advice on accountancy software packages to make your business digital, we are not only happy to assist but can offer highly reduced rates on both QuickBooks and Xero products for all of our clients… please do get in touch to discuss.