A significant number of small businesses in the UK do not take full advantage of HMRC-approved...
HMRC’s ambitious plans to launch Making Tax Digital (MTD) are laudable. The government and the tax authority have clearly seen the need to move with the times.
In fact, HMRC’s stated ambition is to become one of the most digitally advanced and modern tax administrations in the world.
MTD will make fundamental changes to the way the tax system works; making it more effective, more efficient and easier for taxpayers to get their tax right.
Software to Help MTD
Most business owners will likely already use Xero, Quickbooks, Kashflow or another online software. As chartered accountants we can recommend the best system for you and even for larger retail business who require stock integrated bookkeeping systems we can recommend Sage200.
HMRC originally planned to launch MTD in 2018. However, they delayed it until April 2019. MTD will initially only apply for VAT (known as MTD for VAT) to businesses with a turnover above the £85,000 VAT threshold. This is a challenging timeframe for businesses that are unprepared for the change. There will be no changes to the statutory VAT return filing or payment dates.
The rollout will continue with MTD for Income Tax and MTD for Corporation Tax. Both are expected to follow, but not before April 2020 at the earliest. HMRC has also confirmed that the use of MTD by smaller businesses and for other taxes will remain voluntary for the time being.
This means that businesses and landlords with a turnover below the VAT threshold will be able to choose when to move to the new digital system. Whether you like or loath the sound of MTD there is no doubt that the system will be here to stay and its time to ensure that you are getting prepared.
The move to digital integration will hopefully eliminate many of the existing paper-based processes and help taxpayers avoid costly (often accidental) mistakes.
Information will be digitally transferred to HMRC, helping to avoid errors and at the same time integrating tax filings into day-to-day record keeping activities.
HRMC says that the new Making Tax Digital system will help combat avoidable errors. These errors cost the public purse over £9bn a year. HMRC will also introduce a new points based penalty system. However, there will be a one-year ‘soft landing’ period until April 2020.
Pros and Cons of Making Tax Digital
Ultimately, businesses and individuals will benefit from keeping digital records and filing electronically. It will help avoid manual calculation and transposition errors. Businesses are also less likely to lose important paperwork. The use of digital records should also reduce the risk of errors due to lost or incorrectly recorded invoices.
The initial rollout of MTD for VAT will cause a lot of additional work for many businesses. They will need to examine carefully what changes are required to be MTD compliant. There will also probably be some initial teething problems.
There are also some privacy concerns that far more online information will be available to HMRC. Hopefully, the benefits of MTD going forward will far outweigh the initial planning time and expense.