Is Making Tax Digital a good thing?
Ultimately, HMRC and the government have introduced Making Tax Digital to make accountancy more efficient for business owners through technology, and to reduce lost tax revenues for the Treasury.
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.
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How will businesses benefit from Making Tax Digital?
Better use of information
In theory, MTD means that you won’t have to keep giving HMRC information you’ve already provided in the past, or information it can easily source from elsewhere. The long term plan is that there will be more joined up thinking in the tax system so that taxpayers aren’t unduly burdened with excessive tax administration each year. Most of the legislation is still in draft at this stage, though. It’s hard to know for sure how far the system can or will go to make things easier for individual taxpayers and businesses alike.
Tax in real-time
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.
A single financial account
The plan is that, eventually, businesses will be able to see a comprehensive financial picture in a 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.
Added value advice
HMRC’s study found that some felt MTD would enable them to focus more on providing added value advice and services to its clients, rather than focusing on commodity services and record keeping and data entry.
What are the concerns over Making Tax Digital?
Although there are certainly benefits, some business owners and sole traders have also expressed concerns with Making Tax Digital.
Many business owners, particularly those reluctant to keep digital records, believe the current system works for businesses of all sizes, suggesting there is no real need to introduce a completely new system.
Some are apprehensive that the nitty gritty details of exactly how the new system will be used could be too complicated and stressful.
Although more regular updates offer the opportunity to implement better record-keeping and greater awareness of ongoing tax situations, some describe quarterly updates as ‘daunting’