Making Tax Digital – What It Means For Your Business
What is Making Tax Digital?
Making Tax Digital (MTD) is an initiative first announced in the Government’s March 2015 Budget and aims to create ‘a transformed tax system and the end of the tax return’. It plans to ‘make it easier for individuals and businesses to get their tax right and keep on top of their affairs’ by creating an online system allowing taxpayers to sign in and access their own tax accounts through HMRC avoiding costly recording mistakes and potential fines.
The MTD initiative hopes to eliminate the need for the annual tax return for millions of taxpayers by 2020.
When will the Making Tax Digital scheme start?
Every individual and business already have access to their own personalised digital tax account where they can view the tax details and records HMRC holds for them.
The Making Tax Digital scheme is currently in the consultation phase and there are still many unknowns as to how the scheme will work.
The changes are being introduced gradually (see the timetable below) starting with Income Tax for businesses, self-employed people and landlords with annual turnover above the VAT threshold (£85,000) from April 2018.
In 2019 Income Tax of all businesses, self-employed people and landlords with an annual turnover between £10,000 and £85,000 will move to the MTD system.
And finally, the VAT (2019) and Corporation Tax (2020) elements for large businesses will be piloted and rolled out.
What Do I Need To Do Now?
In the Spring 2017 Budget, the Government announced that businesses with an annual turnover below the VAT registration threshold will have an extra year (April 2019) before they are required to file digital records and send quarterly updates to HMRC, although they can choose to do so voluntarily.
If you are self-employed and earn above £10,000, or employed with a secondary income above £10,000, from April 2019 you must meet the quarterly recording deadlines. To do this you will likely need to use an online bookkeeping software compatible with Making Tax Digital and approved by HMRC.
To comply with MTD, evidence of all transactions and trading, such as invoices, receipts etc. must be submitted quarterly to HMRC digitally, through online software.
If you already use online accounting software such as Xero or Quickbooks, these should integrate with the MTD portal, and they will likely send out advisory information soon. If you do not already use an online system, I would recommend researching the many options that are available and suitable for your business.
Are you ready for Making Tax Digital? Recording all transactions digitally could prove to be a time-consuming process. If you’d rather spend that time working on your business, or even if you simply struggle to find time to incorporate record-keeping into your routine, MoGio’VA services can do it for you and liaise directly with your accountant and HMRC to ensure accurate and timely digital processing of your accounts.
Not sure how Making Tax Digital will affect you? HMRC has released a selection of case studies to explain how the changes may affect you.
This scheme is still in its infancy, keep up to date with changes through the UK Government website
*This blog is for information purposes only. MoGio VA is not a qualified accountant and therefore this article should not be taken as advice. All information is correct as at time of publication.