Making Tax Digital (MTD) is a move by the UK government to introduce a modern, streamlined digital tax system that makes it easier for businesses and individuals to keep their tax records up to date and to transfer information to HM Revenue & Customs (HMRC). But is this move just good for the government or are their benefits to businesses as well?
There are many benefits to tax going digital but the concerns are the additional cost to some businesses – and, because it’s HMRC, the worry is that it’ll be left to the last minute and will not be implemented efficiently. We’re having much broader conversations with business owners about the benefits of getting better technology and systems in place. This change will enable you to make better business decisions a lot quicker. Because you’ve got this information to hand, you’ll spot opportunities and have better quality conversations with your suppliers and accountants. Ultimately this will help your business – and business owners are a lot more receptive to that than HMRC telling them ‘We want your data four times a year.’
A lot of the time we’re completing accounts at the end of the year that’s been and gone, whereas now we’ll understand what’s happening within the year. I think that will really benefit businesses and their advisors – helping them make better decisions, quicker.
Below are details of what you need to know about Making Tax Digital.
What’s changing – and how will it affect you?
Each business or individual will be assigned their own Digital Tax Account (DTA), which will allow them to check their records and manage information.
MTD introduces quarterly updates to HMRC detailing your income, expenditure and profit for the quarter to your DTA. MTD will need to be done via accounts software or apps integrated with your DTA.
Notably, these are not quarterly tax returns. An end-of-year declaration which summarises the quarterly submissions will need to be completed at the end of the 12-month period.
What is my Digital Tax Account (DTA)?
Your DTA is similar to your online bank account. It is a secure area where a business can see all its tax details in one place and interact with HMRC digitally.
HMRC started testing DTAs from April 2017, so they are already accessible.
Who does MTD affect?
From April 2019, all VAT-registered businesses (including charities) with a taxable turnover above the £85,000 VAT threshold are required to keep their VAT business records digitally and send their VAT returns using MTD-compatible software.
From April 2020, the rules will apply to the remaining VAT-registered businesses – those voluntarily VAT-registered with VAT-able turnover under £85,000.
Businesses, self-employed people and landlords with a turnover of less than £10,000 will be exempt – as will be those excluded digitally, which will be based on religion, disability, age and remoteness of location – and will be assessed on a case-by-case basis.
What do I need to do to prepare for MTD?
Think about your records. Are these on software packages that are compatible with digitalisation?
Major accounting software providers and online accounting providers are preparing their software to be MTD-ready. Haines Watts has expertise in the various online accounting packages available and can help train you in their use. We also offer services such as accounting services, VAT services and outsourced bookkeeping that can help you to prepare for MTD.
Are there any benefits for my business?
All your data will be in one place and up-to-date. And knowing how much tax you need to pay throughout the year will help with budgeting and cashflow.
Businesses should see MTD as an opportunity to improve their efficiencies and embrace the digital world. Keeping real-time information helps you to understand how your business is performing.
How can Haines Watts help me with MTD?
We can provide guidance and support in getting you MTD-compliant. We can provide accounting services, online accounting packages, outsourced bookkeeping services, tax advice and VAT services.
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