Recently it seems we have been inundated with changes the government are making that is meant to be for the country’s benefit. Whether this be Brexit or Making Tax Digital. The latter recently becoming increasingly drowned out by the former. Both deadlines are looming so you probably have many questions in respect of both. At least with MTD, there seems to be a semblance of a plan in place.
For many business owners, MTD is daunting, some believing that its HMRC’s way of playing big brother and spying into the day to day running of the country’s businesses. Hopefully this article will dispel a few fears and offer a more solid idea of what Making Tax Digital is and whether or not it is going to affect you.
What is Making Tax Digital?
Making Tax Digital is the government’s way of trying to streamline the tax system and create a more effective way of collecting the country’s taxes. Making taxes digital, and as such making record keeping digital, eliminates an aspect of human error. Using MTD compliant software, the data that needs to be included in our returns is calculated correctly and transferred from our computers or mobile devices to HMRC systems without (hopefully) a hitch.
MTD is not a direct link from your computer to HMRC. Your data is still safe and your own, MTD is coming into place to avoid those annoying errors that happen all too easily and often, and which sometimes can be terribly expensive.
How is Making Tax Digital being phased in?
It is the governments “ambition” to “become one of the most digitally advanced tax administrations in the world”. At the current moment, personal tax accounts have been introduced for the individual to have a better view of what exactly they owe or if they are due a repayment; Making Tax Digital is now compulsory for certain VAT registered businesses.
The main change is the MTD introduction in respect of VAT. As I’m sure you’re aware from April 2019 MTD is applicable to VAT returns. However, in true HMRC fashion, this is not a blanket introduction with a current deferred group and not all VAT registered businesses need to be included.
It is most likely HMRC’s goal to phase in MTD to each tax service at a time. It is most likely to be income tax next as HMRC are currently running a pilot for MTD where those who participating send income tax updates to HMRC in place of filing an annual return. However, there are no plans as of yet to roll this out to the masses. The introduction of the personal tax account is HMRC’s way of beginning the transfer. With this service, users can look online at what tax they owe and register for new taxes.
How do I prepare for Making Tax Digital?
If you are an individual, for the moment you can sit pretty. If you are concerned, maybe create a personal tax account and start keeping digital records. Self-employed individuals would be wise to do the same. Bear in mind, you are still expected to keep paper copies of your records for at least 4 years. However, we would recommend that you retain them for 6.
Businesses that are not VAT registered: keep an eye on your VAT threshold because the minute your taxable income surpasses that threshold you are expected to sign up.
Businesses that are VAT registered (and above the threshold): look at your record keeping and make the necessary steps to become MTD compliant. If you are unsure, please refer to our article which details MTD in respect of VAT in more detail.
At the end of the day, all these changes can be incredibly overwhelming. If you are concerned and would like some aid in getting ready for MTD, please do not hesitate to contact us and one of our team will be happy to help.