MAKING TAX DIGITAL – WHAT YOU NEED TO KNOW
Making Tax digital (MTD) is an initiative by the government to reduce the processes involved in tax administration by collecting data in real-time, directly from sources such as accounting software, banks, employers and so on. This is an attempt by the HMRC to allow business owners to get on top of their affairs and submit correct tax returns, whilst making the process more efficient and easier to maintain.
This is not a new initiative, as it was initially introduced in the March 2015 budget which started off as a process just to make tax easier however it has now turned into a much larger project, assessing the whole tax system. There is a lot of work to be done by business owners who currently use a manual processing system but there is a lot of help and advice available from the HMRC to enable businesses to get on top of what they need by the deadlines provided.
The majority of customers want to get their tax right but this has been difficult with manual systems, with a cost to the Exchequer of over £8 billion a year due to avoidable taxpayer mistakes. Using a modern tax system using digital technology (which we’re all about at Kara Accountants!) will make it easier for businesses to get it right.
A business will not need to provide more information that they are already doing now to the HMRC, and the Making Tax Digital initiative is in the hope of making the process more streamlined and easier for business owners and individuals. There are four main foundations of Making Tax Digital as laid out by the HMRC:
BETTER USE OF INFORMATION
This means that customers will not need to give the HMRC information that is already stored or that it is able to get from other sources, i.e. employers, banks and other government departments.
Customers will be able to check the information held at HMRC at any time they wish to check that details are correct and complete.
TAX IN REAL TIME
Customers will no longer need to wait until the end of the year to find out how much tax they need to pay. HMRC will collect data in real time as much as possible to help prevent errors or repayments building up.
SINGLE FINANCIAL ACCOUNT
At the moment customers are not able to see all their liabilities and entitlements all in one place. By 2020 this will be changed so that customer have one place to log into to be able to see a whole picture of everything – just like a bank account.
INTERACTING DIGITALLY WITH CUSTOMERS
Customers and their agents will be able to communicate and interact with HMRC digitally at a time to suit them, not having to wait for office hours. They will also be able to communicate and access support using webchat and messaging services. All digital record keeping
software will be linked directly to HMRC allowing customer to send or receive directly from their software.
Making Tax Digital will be enforced for VAT purposes initially, which will come into effect from April 2019. This means that from this date, businesses with a turnover above the VAT threshold (currently £85,000) will have to:
- keep their records digitally (for VAT purposes only), and
- provide their VAT return information to HM Revenue and Customs (HMRC) through Making Tax Digital (MTD) functional compatible software
The rest of the processes for the HMRC services will be in effect by 2020 at the earliest. This will ensure that there is time to test the system fully and for digital record keeping becoming more widespread.
ARE YOU READY?
Businesses and those who are self-employed will need to update HMRC at least quarterly. If you are already using online software for accounting, this will be an easy process. However, for those 22% of businesses who are not using software to manage their accounting records, it may be a longer process to get on board with MTD.
Good news though for Kara Accountants clients – as we already use online digital software, that will make the transition a seamless pain-free process!
If you’re not already a client and are looking for an accountant who can take you through the MTD process, get in touch today for a no obligation chat!
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