Making Tax Digital | HMRC Aims to Revolutionise the UK Tax System
- Posted by: CB Accountant
- Category: Accounting and Consulting, Tax for Individuals
Making Tax Digital | CB Accountant
Announced in the spring budget of 2015, Making Tax Digital (or MTD) is the government’s pioneering initiative to modernise the UK tax system. By introducing digital record keeping across the board, the programme is set to revolutionise the way we do our taxes, making the entire process simpler and more efficient. In this article, we’ll explore some of the upcoming changes, find out who’s likely to be affected, and discover how the new initiative will impact UK businesses.
Who Will Be Affected by the Making Tax Digital Initiative?
The latest phase of the government’s far-reaching tax initiative – Making Tax Digital – kicks in from April this year, and over two million UK businesses, from sole traders to multi-nationals, will be affected. Here are some of the key points of the MTD initiative:
- As of 1st April 2019, any business with a taxable turnover in excess of the VAT threshold (currently £85,000), will be required to keep digital records of their finances and submit quarterly VAT returns to HMRC.
- Quarterly VAT returns must be submitted electronically via the HMRC online platform using compatible accounting software.
- Businesses with a taxable turnover below the £85,000 threshold can opt into the scheme if they wish to do so.
- Plans are in place to expand the MTD initiative, and businesses will soon be required to keep digital records and submit quarterly updates for both income tax and corporation tax purposes. HMRC is currently running a pilot scheme to test the waters, with a full-scale roll out expected as early as April 2020.
Getting Ready for Making Tax Digital
With the deadline looming, studies show that as many as one in three businesses are unprepared for the digital switchover, and that’s bad news because failure to meet the new requirements could have serious implications, with HMRC dishing out automatic penalties for non-compliance. While many businesses will already have the right tools in place, for some, implementing compatible software in line with HMRC requirements could involve a fundamental change to their accounting processes. A recent study showed that over 15% of small businesses still use paper-based systems or simple spreadsheets to record their incomings and outgoings, and even those that routinely store their financial data electronically may have to invest in so-called ‘bridging software’ to accommodate the new system. HMRC have come under fire for failing to provide the necessary technology free of charge, with some critics arguing that the MTD initiative unfairly penalises small business owners, who will be forced to shell out hundreds of pounds to purchase the relevant software. Despite this, officials remain confident that the new system will prove extremely beneficial, saving time and money and making it much easier for small businesses to record and file their tax returns. Here are some of the ways that Making Tax Digital could help your small business:
- By putting an end to bureaucratic form filling and so-called ‘shoebox accounting’, MTD will minimise accounting errors, miscalculations and fraudulent activity.
- By ditching the annual self-assessment in favour of a quarterly review system, business owners will be able to see exactly how much tax they owe in real-time.
- Through their personal online tax account, business owners will get a true picture of their liabilities and entitlements, see at a glance how their tax is being calculated, and get the opportunity to select preferred payment options.
How Can I Make Sure I’m Prepared for the Making Tax Digital Initiative?
If you’re not fully prepared for the Making Tax Digital initiative, you need to act fast. The deadline for businesses is April 1st, and if you’re not up and running you could face some costly penalties. We can help you meet all the necessary compliance, saving you time, money and needless disruption:
- We’ll review your software to make sure it’s fully compatible with all HMRC requirements.
- We’ll assess your accounting processes and internal controls to ensure you satisfy all the relevant criteria for the new quarterly review process.
- And, we’ll make sure you meet all the statutory submission deadlines and avoid any unnecessary penalties.
For more information about the Making Tax Digital initiative and getting your business ready for the April deadline, get in touch today and speak to one of our financial experts.