Making Tax Digital or MTD is one of the furthest reaching HMRC initiatives of the past 20 years, which makes it all the more surprising that a recent British Chamber of Commerce survey discovered that nearly a quarter of British businesses surveyed had no knowledge of the impending arrival of MTD whilst a further 66% had only heard the phrase with no idea of its implications for their organisation.
What is Making Tax Digital?
An initiative designed to make the entire UK tax system more efficient (and HMRC claim, easier for taxpayer). In the first phase, all VAT registered businesses above the £85,000 threshold will be required to keep digital records and to submit their VAT returns using compatible software. In the second phase, income tax and corporation tax will also be make digital. HMRC says that the new digital system will:
- Create more accurate tax records and reduce the scope for errors, miscalculations and deliberate fraud
- Allow automation for businesses, accountants and HMRC, saving time at every stage in the taxation system
- Reduce the burden of taxation on small businesses by given them the opportunity to record and file tax returns online
Making Tax Digital timeline
- April 2019 – first phase, the new MTD regime for VAT reporting, will be implemented
- April 2020 – second phase of MTD relating to income tax for self employed person and those receiving an income from property is expected to roll out, along with an MTD plan for corporation tax.
Take action today to make MTD a pleasure not a pain
Key points to understand are:
- maintaining digital records must begin in April 2019 but smart organisations will bed in this process well in advance. Paper records will no longer meet legal requirements, and could lead to penalty payments or even prosecution for repeat offenders.
- many forms of organisational entity are affected including: sole traders and partnerships, limited companies, non-UK businesses that are registered for VAT in the UK and trusts and charities.
- compatible software must be used (it has to work with HMRC’s Application Programme Interfaces) so bespoke accounting programmes need to be tested against HMRC APIs very early. The time to look at new software and to take advice from financial professionals is right now!
While this may sound daunting, HMRC is right about one thing – digital accounting is the future and organisations that manage the transition now will find they save both time and money on their accounting processes. Nobody particularly enjoys the imposition of new tax systems but by seeing this as an opportunity to streamline accounting procedures, reduce errors and deliver tax reports swiftly and efficiently, many organisations will find overall business benefits.
Your Finance Team is fully equipped to take you through the MTD process, whether you need wise advice, or in-house support from reliable, high-calibre finance professionals who can be hands-on in your business premises. If MTD is giving you headaches, please call us today on 01737 652 221, so we can turn it from a pain to a pleasure for you.