HMRC is aiming to make tax administration more efficient and easier for both business and individuals by going digital. The idea is that there will be fewer mistakes and that the process will become efficient. This will see the system as we know it transformed with the hope that we can become one of the most digitally advanced tax administrations in the world.
What is Making Tax Digital?
Making tax digital is a HMRC initiative that requires businesses to use software to submit information electronically.
The process started back in April 2019 when businesses with a taxable turnover of more than £85,000 were required to follow the Making Tax Digital (MTD) rules which included maintaining digital records and submitting their VAT returns using approved software.
Those below the threshold can voluntarily join now. If you choose not to, you'll be required to adopt MTD rules for your first return starting on or after April 2022. If you're a taxpayer who files an Income Tax Self Assessment for business OR because you have a property income of more than £10,000 p.a. the deadline will be April 2023.
Why are they Making Tax Digital?
One of the major aims of MTD is to improve efficiency. It was estimated that in the tax year 2017-18, avoidable mistakes made by taxpayers cost the Exchequer more than £9.9 billion in lost revenue.
Studies are already showing that there is less scope for error due to things like a reduction in manual inputting. This has also led to a reduction in time-consuming tasks like data inputting. As you can probably imagine, there will be other benefits for businesses which we're guessing will become clearer as time goes on.
OK - So what does that mean for me?
Currently, MTD requires you to keep records such as the VAT on goods or services you supply, any adjustments you make on a return and VAT on your total sales, digitally. HMRC have a full list of the records you must keep digitally online.
Essentially you need to be adding all of your transactions to your digital records and you can do this using a compatible digital software package or other software that connect to HMRC systems.
There is a wealth of information on Making Tax Digital on HMRC's website. This includes a comprehensive evaluation of the process as well as detailed research on areas such as reporting errors and compliance. There are also instructions for both businesses and agents.
Research shows that many businesses are finding the rollout of MTD easier than first thought. They are welcoming the opportunity to manage their finances in real-time and the vast majority are comfortable using technology to manage their business finances.
Having said this, if you're struggling to find the time to break the information down and work out what you need to do, we're more than happy to have a conversation. We're experienced in cloud accounting and can make MTD a straightforward process, leaving you to get on with running your business.
MAD Accountants have an office in West Bridgford and are based in the East Midlands in Nottingham. We work with businesses and individuals throughout the UK. Please get in touch to discuss how we might be able to help you.
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