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.
Interacting digitally
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.
New system
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.
Stress
Some are apprehensive that the nitty gritty details of exactly how the new system will be used could be too complicated and stressful.
Quarterly updates
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’
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Frequently Asked Questions
Yes - we use software that is compliant with Making Tax Digital. If you don’t want the stress or worry or setting up a new digital system, contact us today to see how we can ensure that your accounts are compliant with MTD.
Keeping digital records is a core aspect of Making Tax Digital. From now on you will need to keep your records in a digital format, stored on a computer or in the cloud. If you use handwritten invoices or receipts then you'll have to transfer that accounting information into MTD compliant software before you submit your returns (or get your accountant to do it for you!).
Keeping digital records doesn’t mean you don’t have to keep original paperwork. Quite the opposite, in fact. Original paperwork still needs to be stored as it could be required by HMRC in the event of a tax or VAT investigation. For most businesses, it means keeping paperwork for at least six years, though for many (VAT MOSS) it is a minimum of 10 years. HMRC will accept digital copies of receipts and invoices, so you could scan documents and store them to save on storage space in the office. But who has time for that?
Something we pride ourselves on at Mazuma is digitising records for our clients who don't want to use our app or their own MTD compliant software. If you prefer more traditional methods or are perhaps a little sceptical of a more digital future, you can send us all of your paperwork. We’ll scan and digitise it for you, saving you a lot of admin hassle and keeping you completely compliant with current and future MTD rules.
At the moment, no. Making Tax Digital won’t change how often you need to submit your vat return and you still have to send the same information. MTD will simply change how you record your finances as well as how you submit your quarterly VAT return to the powers at be, HMRC.
Yes, if you are VAT registered and your turnover is above £85,000, then the rules apply - it doesn’t matter if you’re a sole trader or a limited company! And eventually it is likely to apply to all businesses with a turnover over £10,000 as well as most individuals who submit tax returns - such as the self employed and landlords.