“Making Tax Digital” (or “MTD”) is part of the government’s plan to modernise the tax system, and make it easier for individuals and businesses to get their tax right and keep on top of their affairs. HMRC says it wants to become one of the most digitally advanced tax administrations in the world.
Slowly but steadily, their aspiration will become a reality. Individuals and businesses can already access their own personalised digital tax account (if you don’t have one, you can set one up here).
What are the benefits?
MTD means that individuals and businesses should no longer have to give HMRC information it already has, or that it is able to get from elsewhere, e.g. from employers, other government departments, or banks and building societies. In theory, there should be no need to hunt around for a missing bank interest certificate to complete your Tax Return!
HMRC say they will also be able to collect and process information more regularly (“in real time”), the idea being you won’t have to wait until the end of the tax year to know how much tax you need to pay, giving you “time to budget”.
By 2020, HMRC is aiming to give taxpayers an overview of all their liabilities and entitlements in one place – everything shown on one screen, without the hassle of multiple logins.
Finally, taxpayers and agents will be able to interact digitally with HMRC, by using webchat and secure messaging. Digital record keeping software will also be linked directly to HMRC’s systems, for a “seamless system”.
MTD has been on the horizon for some time, but following a consultation period in which a number of concerns were raised, the government has listened and recently adapted the rollout timetable.
Businesses with turnover above the VAT threshold will need to start using the MTD system from April 2019, initially just to meet their VAT obligations. HMRC says that 98% of VAT-registered businesses already file electronic returns, and to begin with the updates to HMRC will continue to be quarterly, and sent directly from software.
Businesses which are not VAT-registered, or who are voluntarily VAT-registered (for example, because their turnover is below the threshold, currently £85,000), can choose to sign up to MTD early (from April 2019) and send quarterly updates to HMRC, but it will not be mandatory at that stage.
The scope of MTD will be widened beyond VAT once the system has been shown to work well, and, we are told, not before April 2020 at the earliest. So if you don’t have a business, or if your business turnover is below the VAT-registration threshold, MTD won’t be compulsory before April 2020 at the very earliest.
How do they know it will work?
HMRC will start piloting MTD at the end of this year, followed by a wider pilot in Spring 2018, to give them over a year to iron out any issues with the new system, before it officially launches.
What do I need to do?
Under MTD, affected businesses will have to keep digital records of all transactions, within software that links directly to HMRC’s system. Scholes CA already offers cloud accounting solutions from Quickbooks and Xero, leading providers who have committed to ensuring that their software will comply with MTD, so if you use one of these product you should be able to comply.
If, however, you currently use handwritten records or spreadsheets to record your business income and expenses, you may need to upgrade your system in order to comply with the new rules.
If you would like to explore accounting and bookkeeping software options, please get in touch and we’ll be delighted to advise on a solution for your business, so that you can be MTD-ready in plenty of time. Aside from being able to comply with the new requirements, modern cloud accounting solutions deliver many other benefits to the small business. Give us a call to discuss solutions today.