17 Dec Making Tax Digital: Everything You Need To Know
If you haven’t yet heard about the government’s new Making Tax Digital (MTD) scheme, and you own or run a business in the UK, it’s about time you got your head around the new legislation (and how it’s going to change your tax practices moving forward).
What is Making Tax Digital?
The Making Tax Digital initiative, which is also referred to as Making Tax Digital for Business, is designed to make it so much easier for companies like yours to stay on top of their tax affairs.
The premise is this: instead of rushing to complete accounts by an annual deadline, businesses can submit their returns quickly and easily online, in real-time.
There are three benefits to this new system:
- Submitting everything digitally will greatly reduce the risk of human error, leading to less miscalculations and less to-ing and fro-ing with HMRC!
- Companies will be able to find out exactly how much they owe the tax office at any given time (and can budget accordingly)
- Accountants like us can monitor your tax liability over the course of the year and provide you with sound advice based on the here and now
When is MTD coming into effect?
Don’t panic – you don’t have to do anything right away. HMRC is easing us into the new system by releasing the scheme in stages.
All businesses that are VAT registered and turning over profits above the VAT threshold will need to begin submitting their tax information digitally as of April 2019. Companies that are earning less than the threshold (currently £85,000) have the choice to opt-in to the scheme at this point if they want to, but they can continue using HMRC’s online portal instead for the time being.
All other companies – including those that are VAT registered but earning under the threshold –should prepare to start submitting their income tax and corporation tax figures quarterly via Making Tax Digital as of April 2020.
What you’ll need to do to become compliant with the scheme
In order for Making Tax Digital to work, businesses will need to make sure they are not only keeping an accurate record of their finances, but that they’re also able to submit all the data directly to HMRC on a voluntary and regular basis.
This will involve using a third party accounting system that is compatible with HMRC’s API, and that allows you to do the following:
- Store all of your financial records in a digital format
- Create accurate tax returns from these records
- Send this information directly to HMRC
- Receive notifications and reminders from HMRC
HMRC has been working closely with a number of software suppliers to ensure there are enough platforms out there to cater for the needs of every company. According to Gov.uk, 40 of 150 major suppliers have already pledged to ensure that their solutions will be ready for Making Tax Digital before the launch of the first phase of the pilot, so there’s a good chance you’re already using a product that’s going to be technically in sync.
We’re pleased to let you know that Xero is one such accounting software that is now fully prepped for the scheme – and it’s made us love this incredible tool even more! Xero’s proactivity means that all of our existing clients will be able to seamlessly transfer over to the new system with minimum fuss, and anyone who joins us before the deadlines can be fully briefed on their new obligations and can start using the system as soon as the scheme comes into effect.
If you have any questions regarding the implications of the Making Tax Digital initiative, or you’d like to discuss how the team here at Abacus Accountancy can help you stay on top of your tax obligations, contact us today and we’ll be happy to help.