20th September 2018
You should have heard all about Making Tax Digital by now. If you haven’t, then it’s a good job you’re here.
There’s no need to panic just yet, there’s time to get everything in order before the government launches their new HMRC initiative in April 2019.
HMRC’s Making Tax Digital (MTD) system will revolutionise the way businesses and the self-employed submit their tax. And the clue is in the title – it’s all digital. Which means the end of manual records, making it a simpler, more effective UK tax system.
But it would be wise to start the ball rolling now, rather than leave it any longer. You don’t want to upset HMRC and risk being slapped with a fine…
From April 2019, the government intends to make it much easier for businesses and self-employed to keep on top of their taxes through Making Tax Digital (MTD).
HMRC loses £9billion every year because of taxation errors, and they believe that is partly due to the way businesses declare their income.
By making the tax system fully digitalised by 2020, businesses and self-employed will be able to get their tax submissions right on the money, and HMRC will save a pretty penny or two by reducing their overheads.
For businesses and self-employed with a turnover above the VAT threshold of £85,000, they will be required, from April 2019, to have compatible software in place in order to maintain digital tax records, and provide quarterly updates to HMRC.
If you have an annual turnover of less than £10,000, then you will be exempt. You can, however, voluntarily choose to use the MTD system.
There are four foundations of Making Tax Digital, as set out by HMRC:
1 Better use of information
There is no need for businesses to provide HMRC information it already has, or that is available from banks, building societies, employers or other government departments.
Digital tax accounts for all will mean customers can see the information that HMRC holds and be able to check at any time that their details are correct.
2 Tax in real time
There will be no need for businesses to wait until the end of the year, or beyond that, to know how much tax they should pay. HMRC will collect and process information affecting tax as close to real time as possible.
That way, any errors should be avoided, and any tax due or repayments owed will be prevented from building up.
3 A single financial account
By 2020, businesses will be able to see a comprehensive financial picture in their digital account, just as you can with online banking.
4 Interacting digitally with customers
Businesses will be able to interact with HMRC digitally at a time convenient to them. They already have access to a digital account which will present them with a personalised picture of their tax affairs.
Digital record keeping software will be linked directly to HMRC systems, allowing businesses to send and receive information directly from their software.
Digital records are a digital image or copy of a paper record, for example a photograph, that can be held in an electronic or digital format and which can be accessed on a laptop, a mobile phone, a tablet or a desktop computer.
The record must include the date, amount and category of each business transaction
A digital link will then allow that data to be imported, or exported, between programs without the need for manual intervention.
If you or your business already uses accounting software, you will need to make sure it is compatible with HMRC.
If you don’t use digital software, for example relying on Excel or even paper, you will need to implement MTD-enabled software.
HMRC has estimated that transitional costs average at about £280 per business across the period of transition to MTD.
If you are self-employed, you can delegate all your bookkeeping and online filing to an accountant, tax adviser or bookkeeper.
Simply Business have put together a very handy MTD software guide, which we would recommend reading.
This is an easy one to answer. Yes, you will be penalised by HMRC if you do not transfer to Making Tax Digital.
The most important thing is that you meet the deadline. That if you are VAT-registered, you are ready for Making Tax Digital in April 2019.
A large percentage of businesses and self-employed will need to change their current systems and software so you are completely compatible for MTD.
It’s best to start making any changes now, and that’s why RDG Accounting are here. We want to help, we want to make sure you are ready and that the transition is as smooth as possible, and that EVERYTHING is in order.
We are already helping businesses make the transition to Making Tax Digital and ensuring they meet the deadline.
If you’d like our help or wish to discuss MTD further with us, please fill in your details below and one of the team will be in touch. Alternatively, give us a call on 0333 200 0714.
have you read our previous post?