What is Making Tax Digital?
First announced in the 2015 Spring Budget, Making Tax Digital (or MTD) is the government initiative designed to transform tax administration by introducing digital record-keeping, making the tax system “more effective, more efficient, and simpler for taxpayers.”
Why is it happening?
The vision is for business owners, the self-employed, and landlords to have their own digital tax accounts with everything stored in one place, thus making tax affairs simpler and more streamlined.
Another aim is to tackle cases of non-compliance. We’ve heard a lot about the tax gap recently, with HMRC vowing to save £4.8bn in uncollected taxes by 2023
. HMRC are hopeful that non-compliance and tax mistakes should both be reduced by the new system.
When will it happen?
Although originally planned to start from April 2018, the new timeline means that MTD won’t be implemented until April next year, and then it will only be for VAT reporting.
From April 2019, if you’re a business with a taxable turnover above the £85,000 VAT threshold, you’ll need to keep your VAT records digitally and report figures to HMRC each quarter. If you’re a smaller business below the threshold, you won’t have to do this until 2020.
HMRC have said they won’t widen the scope beyond VAT until it is shown to work, meaning it’ll be 2020 at the earliest before MTD rolls out to include other taxes such as Income Tax and Corporation Tax.
Are there any exemptions?
If you’re already exempt from submitting VAT returns electronically, you’ll also be exempt from MTD for VAT. This includes those who have a religious belief incompatible with the use of electronic communications, and those who cannot make an electronic return due to disability, age, or remoteness of location.
What do I need to do?
The main change is that you’ll need to use digital tools, such as online accounting software to keep a record of your income and expenditure. It’s worth checking that your accountant is using MTD-compatible software that also suits your needs.
Online accounting software
At Danbro, we give all our clients an accounting package such as Quickbooks
The software, which includes an app, allows you to track your income and expenses from your smartphone. Because over 97% of our clients are already using online accounting software, the transition to MTD will be a smooth one.
What records do I need to keep digitally?
You’ll need to keep digital records of your designatory data: your business name, address of your main place of business, your VAT registration number, and details of your VAT accounting scheme(s). You’ll also need to keep details of your supplies made and received. You can find more information on record-keeping requirements here
Worried about being MTD-ready?
You may be worried about Making Tax Digital, especially if you’ve never used an online accounting package before.
Of course, we’re not all tech-savvy, but your accountant should be. If your current accountant still heavily relies on paper records and excel spreadsheets, then you should speak to them about how they’re preparing for the changes ahead.
Danbro Operations Director Neil Ormesher embraces the upcoming changes
“We see the positives from this initiative, using digital tools to undertake your book-keeping can bring many efficiencies to a business and more importantly give business owners timely information to help make those difficult decisions.”
To make sure you’re prepared for Making Tax Digital, speak to our expert team on 01253 600150 or email email@example.com.