Almost a year ago now we wrote an article on big changes due to arrive in 2018 called Making Tax Digital (MTD).
Since then there’s been a snap UK general election, which put the brakes on the Making Tax Digital legislation and delayed it until 2019. However, HMRC claims it has been amended to ensure businesses have plenty of time to adapt to the changes.
With all the changes, we decided to update our article with the new dates along with new information that’s been provided by HMRC.
We’ll quickly recap what MTD is and explain the practical implications for your business in the future.
What Is Making Tax Digital?
Making Tax Digital is the initiative from HMRC that aims to become “one of the most digitally advanced tax administrations in the world”.
But forget about the world, what does this mean for you?
HMRC sells MTD as a means to help individuals and businesses better keep on top of their taxes. It’s an attempt to drag our tax system into the digital era and make the whole system easier for businesses.
Well, that’s the story at least.
This will be done in a number of ways, including, individuals and businesses now having access to their own personalised digital tax account, as well as seeing an end to the annual tax return.
However, due to the delay businesses will not be mandated to use the MTD business system until April 2019.
This will apply to businesses who have a turnover above the VAT threshold (smaller businesses can choose to do so voluntarily but are not required). Although it is strongly stated that the Government remains committed to getting all businesses and agents onboard over the years to come.
What Are The Benefits of Making Tax Digital?
According to HMRC, there are four foundations of Making Tax Digital that will all work together to supercharge our tax systems and make things so much easier for the individual and businesses.
1. Better use of information
Instead of sending every scrap of information you have (regardless of whether HMRC already has it or not), you can now just update your information online through their new digital tax account. This means you are able to see what information HMRC already holds, check if it is complete and correct any errors.
2. Tax in real time
Another benefit is that you no longer need to wait until the end of the year to see how much tax you owe. HMRC claims that they will be collecting and processing information as close to real time as possible to help prevent errors and also give you a heads up on what you might need to repay so they don’t pile up.
3. A single financial account
Making Tax Digital will give an overall financial picture of your liabilities and entitlements in one place – your new digital account. This will be useful is seeing all the important information together to fully get a better understanding of your taxes.
4. Interacting digitally with customers
And their final claim is that it’s going to be easier to contact HMRC — or so we’re told. Webchats and secure messaging are all supposed to be coming over the next few years. With access to your digital account with all your information it has hopes to speed up the entire process.
Making Tax Digital for Business
A modern tax system, based on digital technology will make it easier for businesses to get their tax right. Reducing the amount of avoidable errors will also reduce the cost, uncertainty and worry that businesses face when HMRC is forced to intervene to put things right.
With so much business being carried out online, digitising record keeping is seen to be the next step, if not one many have already taken.
Due to the delay and the concern over the scale of change, businesses will not be mandated to use the Making Tax Digital for Business system until April 2019 and then only to meet their VAT obligations.
Technically, you don’t need to provide information any more regularly that you already would. VAT has been online since 2010 and over 98% of VAT registered businesses already file electronic returns.
HMRC claims that Making Tax Digital will build on this process by integrating digital record-keeping to provide a single, seamless process with quarterly updates generated and sent direct from the software the business/agent uses to keep their records.
HMRC has also indicated that they might make a very basic accounts package available for free and will be there to provide all the information and advice needed for this change.
What Are The Next Steps For You?
If you want to get ahead of the game, or even just get your head around the oncoming changes you should start keeping digital records straight away and keep an ear out for the changes, due to be released again in Spring 2018.