Here, Reece Dean from the Ascentant Accountancy team looks at Making Tax Digital (MTD)
Making Tax Digital – What is it?
Making Tax Digital is a UK government incentive with the intent of making it easier for individuals and businesses to get their taxes right and keep on top of their affairs.
The ambition of this incentive by the HMRC is to transform tax administration with the aim of becoming one of the world’s most digitally advanced tax administrators in the world.
Simply put – This modification will fundamentally change the way that tax reporting is done for VAT, business taxes, and personal taxes.
Under Making Tax Digital, taxpayers (or their nominated agents) will be required to send the HMRC summaries of their income and expenditure on a minimum of four times per year, which, according to the HMRC, will enable a more ongoing and accurate projection of tax due. The current system of tax reporting allows for just a single tax bill at the end of the year.
Aside from the increased frequency of reporting, it will soon also become mandatory for all tax reporting to be done digitally through the use of a software.
To do this, taxpayers (and nominated agents) will be required to integrate their accounts with a compliant Making Tax Digital software, which can then report directly to HMRC.
How does this affect your business?
If you own a business, or are self-employed and pay income tax, national insurance, VAT or corporation tax then it is very likely that you will be affected.
Initially, the Making Tax Digital service would make it applicable for only VAT related reporting to be required.
In terms of timescale, for any VAT-registered business with a taxable turnover above the VAT threshold (currently £85,000 per year), they will be required to use the Making Tax Digital service to keep their records digitally and use software to submit their VAT returns from 1stApril 2019.
Eventually this will also replace annual tax returns and will become a legal requirement which would result in penalties for non-compliance.
Since current VAT reporting already necessitates quarterly returns, this should mean that no business will have to provide any additional information to the HMRC during this initial phase than they already do.
For those other businesses concerned (sole-traders, partnerships, etc.), note that all other taxes aside from VAT, will not be required for the Making Tax Digital service until at least April 2020 – So there is still plenty of time!
What to do next…
As a business, you will be allocated a digital account through the current Government Gateway, of which, you will need to log into and update your information every quarter, using digital accounting software.
For a list of compliant Making Tax Digital software, please follow the below link:
Ascentant are Accountants and Business Consultants based in Derby and London. For further information on Making Tax Digital, contact us on 01332 897356 or email@example.com.