First announced during Budget 2015, Making Tax Digital is a government plan that will transform how businesses and people pay tax – with the hope of achieving a fully digitalised online tax system.
While this was initially estimated to happen by 2020, the government has acknowledged the need to potentially shift timelines based on testing – so businesses will “be able to move to keeping digital records for tax at a pace that is right for them”.
Once fully implemented, business owners will no longer be able to manually pay tax via pen, paper and post – a process that causes over £9bn worth of tax to be “lost” every year due to human error.
Making Tax Digital is a key part of the Governments plans to make it easier for individuals and businesses to get their tax right and to keep on top of their affairs. Transforming the administration so it is…..
- More effective
- More efficient
- Easier for tax payers to get their tax right
- More transparency
- Real time data
- More flexibility
The changes outlined in the Making Tax Digital initiative will apply to a wide range of taxpayers, including most businesses, self-employed people and landlords, as well as individual taxpayers.
If your business is above the VAT threshold (currently £85,000 turnover) then you must register for VAT. Starting on the 1st April 2019 if you are above the threshold then you will need to have digital records to capture all of your business transactions and prepare and submit your VAT return to HMRC using some form of compatible software that can send and receive information automatically.
Your first MTD return will be for your first VAT period that starts after the 1st April 2019. If you’re VAT registered and don’t fulfil your MTD responsibilities , you’re liable to receive penalties from HMRC. If you are not VAT registered there are no requirements for you as yet, but bare in mind if you are close to the £85,000 turnover.
If you are already using a digital accounting system, its possible it could be compatible with MTD. If you are not already using digital software , it doesn’t have to cost a fortune.
you will have to update your tax records four times a year but this is not the same as doing four separate tax returns. Everyone dreads completing their tax return; they put it off until the last minute and then have to deal with a full year’s worth of receipts and invoices.
The quarterly updates for MTD will not be a quarterly repeat of this performance. Rather, you will update your books as you go, throughout the year. Every quarter, you’ll simply have to review the data and confirm that it is accurate.
HMRC has stated that it will provide a free, basic software and there are also plenty of low cost options out there on the market so no more shoe box accounting , no more hunting for receipts and an easier system all round.