With many business owners dreading the mountains of paperwork, calculations and deadlines that accompany their annual tax return, the Making Tax Digital (MTD) plan will be a welcome change. The aim of the new government plan is to make it easier for everyone to get their tax right and will ultimately mean the end of the traditional annual return. The new digital tax accounts will increase efficiency, making the tax system more effective and easier to comply with.
If the end of the annual tax return wasn’t great enough, there are also some other benefits to MTD:
- Better use of existing information – You’ll no longer need to give information to HMRC that it already holds in the system.
- Tax in real time – Information will be collected and processed as close to real-time as possible.
- A single account – You’ll be able to see all your liabilities and entitlements in one place.
- Interacting digitally with taxpayers – Giving increased interaction with HMRC through web chats and secure messaging.
How will this affect your business?
Making Tax Digital for Business (MTDfB) will be introduced gradually from April 2019. With the overall aim of helping businesses to get their tax right, they’re starting off with VAT. Understandable when you consider that in 2014-15 alone, over £3.5 billion of revenue was lost due to avoidable mistakes in VAT returns.
From April 2019, VAT registered businesses with a turnover that’s above the threshold (currently £85k) will need to keep digital records and only for VAT. As returns are already mainly online and sent out quarterly, the changes to digital reporting should be minimal.
VAT registered businesses under the threshold (those that have registered for VAT voluntarily) can choose when they would like to move to the new system. Businesses with a turnover of less than £10k are excluded from MTD.
You won’t be asked to keep digital records for any other taxes until at least 2020.
How to keep digital records
Businesses will have to keep their records digitally so will need to use some sort of software. HMRC will be launching an app but with a number of different accounting software packages also available, you can choose the right one for you. Any package you use will need the capability to connect online so that data can be sent through to HMRC. If you’re already using one of the online packages like Xero, you won’t need to change and the process of getting ready for MTD will be much simpler.
If you don’t use accounting software already and would like to make the transition now so that you’re fully prepared for MTD, have a look at Xero. This could make keeping your business records so much easier, giving valuable time back to your business.
If you’d like any more information about MTD, please call me on 01604 330220 or send me an email.