What is Making Tax Digital?
Making Tax Digital (MTD) is a UK Government initiative to improve the processing of tax returns for individuals and businesses. The plans were first announced in March 2015, and yet most people are still not aware of what this means or how this will affect them. This might be the case for yourself, and you may not be thinking about MTD because it’s not due to be completed in full until 2020; however, implementation is already taking place now so it’s important to understand what is happening and be prepared for the changes.
Who does Making Tax Digital impact?
MTD will apply to almost everyone from individual taxpayers, to the self-employed, landlords and most businesses. HMRC have confirmed that they will allow for some exemptions such as “for taxpayers who cannot engage digitally” and for those who are below the minimum threshold of £10,000 annual sales.
What does Making Tax Digital mean?
The main changes that we will see from MTD are that:
Firstly tax returns will all be completed digitally. Already, every small business owner and an individual taxpayer can register for their online account and access it in order to check their records and manage their details with HMRC. To file your tax return digitally, you will be required to use certain types of software which we will discuss in more detail later on.
Secondly, the annual tax return will be scrapped and instead be replaced with quarterly tax submissions in which you will need to declare your income tax and national insurance obligation. It is not the case that you will need to submit a full tax return four times a year, but rather, submit more accurate updates more regularly to HMRC. This will mean that you will no longer have to wait until the end of the tax year to know how much tax you have to pay.
How will Making Tax Digital help?
The changes planned for MTD are designed to improve the current processing of tax returns.
- Better use of information. There will no longer be a need to submit the same information time and time again because HMRC will be able to see the data that is stored elsewhere such as from employers, banks, building societies and other government departments. You will also be able to see what data HMRC holds for you and check at any time that it is complete and correct.
- Tax in real time. With more regular updates, HMRC will be able to collect and process information affecting tax as close to real time as possible to help prevent errors and stop tax due or repayments owed building up.
- A single financial account. MTD will mean that by 2020 you will be able to see all your tax liabilities and entitlements in one place so you can be clear on where you stand and allow for more efficient budgeting.
- Being able to handle your tax with HMRC digitally means being able to update information any time anywhere with an internet connection. As MTD will rely on software and apps, it can go as far as allowing you to handle your tax with even just a mobile device, making the process much more convenient.
When do I need to start Making Tax Digital?
The newest timetable published from HMRC 13 July 2017 states that:
- Only businesses with a turnover above the VAT threshold (currently £85,000) will be required to submit digital records and only for VAT purposes from 2019
- It is planned that businesses will be required to submit other taxes digitally and quarterly from 2020 onwards
How do I make my tax digital?
In addition to the timeframes HMRC has put in place, you should also think about how much time you will need to become familiar with completing your tax return digitally. Getting to grips with the new software that you will have to use is an important consideration to make as it will be mandatory. Learning and using new technology can be confusing but you can find out more about cloud accounting software here.