The government’s Making Tax Digital (MTD) initiative sees taxpayers move to a fully digital system in the next three years.
Most things are being done via the internet these days, and the government believes tax affairs should be online too.
HMRC’s goal is to become one of the most digitally advanced tax administrations in the world.
MTD will be making fundamental changes to the way the system works, ensuring it’s more effective, more efficient and easier for taxpayers to get their tax right.
This initially affected just a percentage of businesses, but within the next couple of years it will impact everyone.
The integration to MTD is gradual. VAT-registered businesses with a taxable turnover above the £85,000 threshold already use MTD.
Those VAT registered businesses below the threshold will need to comply with MTD from April, 2022. And the self-employed — including landlords with annual business or property income above £10,000 — will need to comply from April 2023.
Making Tax Digital: Pros
More efficiency: Digital tax accounts remove the risk of making mistakes as you no longer need to deal with lots of paper. Even paper receipts are scanned, meaning no need to hang on to them. And if you lose one or two, it’s fine if you scan them immediately as you will always have a record.
Less stress: Under MTD, you will submit your information on a quarterly basis, which makes it more manageable. Some self-employed groups say this could create more stress. But we believe it’s better to look after your accounts on a regular basis. There will be no need to panic about your accounts in December!
No surprises: Rather than receiving a bill to pay in January, you can keep track in real time. This means no surprise big bills, so you have more control of your finances.
Less paperwork: Very little manual processing of paperwork means the data will flow more easily. It may be a shock to the system at first, but you will get used to it.
Better chance of lowering your tax bill: If you have a better handle on your finances you can plan more effectively. As you have digital tools to hand you could even save on your tax bill. It’s best to employ an experience tax adviser to advise you on planning and strategy.
The more accurate a picture you have of your finances, the easier it is to plan effectively. By providing you with the tools you need to keep track of your taxes as you go along, MTD affords you greater opportunity to make savings on your tax bill. To take full advantage of this, we highly recommend employing a tax adviser to advise you on strategy and tax planning.
Making Tax Digital: Cons
Online issues: In an ideal world MTD is a great solution. Sadly, we don’t live in an ideal world and connectivity could be a problem for rural businesses. Even in towns, there can be issues with the internet. Also, some people in business are not technically savvy so could struggle.
Less privacy: While we’re sure you have nothing to hide! But there is concern that HMRC will be able to harvest data without you knowing. There is a chance to review data submitted before it is transmitted, however, so that should give some peace of mind.
More deadlines: VAT returns are already submitted quarterly, so many business owners may be used to that. But when it comes to income and corporation tax and the self-employed, quarterly filings means more deadlines. You may work more hours more regularly as a result to meet deadlines.
What to do
Make sure you speak to your accountant and get advice on the impact MTD will have on you and your business. It’s important to be honest, speak about any concerns and make sure you’re up to speed with the exact timescales.
We use Xero accounting software, which makes filing returns and keeping track of accounts simple. It is worth getting accounting software now so that you don’t have to worry about the dates that MTD start for you.
Speak to us today about accounting software or if you have any concerns.