Have you heard of the change coming to the current tax system that is Making Tax Digital?
If not, don’t worry!
We’re here to fill you in on what it Making Tax Digital actually means, how it will affect your business, and how we can help business owners, self-employed workers and sole traders comply.
Making Tax Digital (MTD) is the government’s plan to make it easier for businesses to get their tax right and keep on top of their taxes and bookkeeping.
It’s estimated that £9 billion is lost annually as a result of tax errors and mistakes. HM Revenue & Customs’ (HMRC) goal for MTD is to help businesses get their tax right and reducing the amount of tax lost through avoidable error.
So, every business now has access to their own personal digital tax account as HMRC have made it their mission to become one of the most digitally advanced administrations in the world. The concept is already used by businesses already banking, paying bills, and interacting online - meaning it’s not completely unfamiliar territory.
Originally, this push for MTD was going to become mandate from April 2018. However, many professional bodies realised this was unrealistic, so the date got moved to allow small businesses more time to become familiar with the change.
The crazy thing is, 25% of accountants haven’t even heard of this change yet…
Always on the ball, we’re ready for the change and to help business owners become familiar with MTD.
The official date MTD will begin is April 2019. But don’t stress, this date is only to meet your VAT obligations.
It also only applies to businesses who have a turnover above the VAT threshold. This means that smaller businesses, who are below this threshold, won’t be required to use the system. Although they can choose to do so voluntarily.
HMRC have said that it won’t widen the scope of Making Tax Digital for Business beyond VAT before the system has been shown to work successfully, and not before April 2020.
This time frame will ensure that there is time to test the system fully and for digital record keeping to become more widespread.
There are three main changes which MTD may bring to how your business does it’s taxes annually. There are:
The first main requirement for businesses for MTD is to maintain records digitally using third party software. This is something which you may already do, so may not actually make much difference to how you keep track of your records.
Business owners will need to update HMRC on a quarterly basis from their digital records.
This means a significant shift in your tax obligations. Many businesses already do this to keep themselves accountable and keep track of finances. However, if you don’t already keep regular updates, it may be an extra burden on your shoulders. Despite the extra hassle, it will give you greater certainty during the year about your tax liability year to date.
The opportunity MTD provides for businesses to pay tax more frequently, in closer to real time and on a voluntary basis. This is different to how businesses currently pay their tax bill - once per year after the end of their financial year..
It’ll mean you won’t have to keep giving HMRC information which you have already given them in the past, or information that they can easily get from elsewhere (like banks, building societies and other government departments).
HMRC can collect and process information which affects tax in real-time. This means you won’t have to wait until the end of the year to find out how much tax you need to pay. This creates an opportunity for business owners to improve their record keeping and better understand their ongoing tax situation.
By 2020, you’ll be able to see a comprehensive financial picture in your digital account, all in one place and on one screen.
You’ll be able to interact digitally with HMRC when it best suits you. These interactions include a personalised picture of your tax affairs, prompts, advice and support through web chat and secure messaging.
HMRC conducted research to find out more about small businesses and agents overall understanding of, and reactions to the requirements of MTD. This included the use of digital record-keeping tools, updating HMRC quarterly and the option to pay more frequently than once per year.
So, let’s check out the benefits:
Business owners and sole traders have also expressed concerns with Making Tax Digital. Some of these perceived negatives were:
This may all sounds a little daunting, but worry not! Mazuma are ideally placed to help business owners and sole traders to comply and MTD without any mistakes. In fact, we’ll do most of the legwork for you.
We recognised the need for an online accountants, in order to make your life easier, so are pretty clued-up on how to make see the benefits of working online.
We’ve got your back throughout the whole MTD change...