On no ……. not another change imposed by UK Government which brings more red tape, compliance and inevitable cost! I’m afraid so and we groan even as we write about it.
Apparently Making Tax Digital (MTD) is meant to improve the processing of tax returns for individuals and businesses. Wow – that would be great if it does what it says on the tin!
In case you missed it, the plans were first announced in 2015, and to be honest, most people are still not aware of what this means or how this will affect them. We know this because the ICAEW surveyed 500 business asking if they are aware of the new requirements and what steps they have taken to prepare for the changes and nearly half of respondents said they had not heard of MTD for VAT!
This might be the case for you and your business, and you may not be thinking about MTD because it’s not due to be completed in full until 2020; however implementation is already taking place now and the big shift will start for VAT from April 2019.
Just in case you were struggling to find some good reading material to send you to sleep at night or at work - here are a few questions and answers about MTD to help:
So, who does MTD affect?
Well, it will apply to almost everyone from individual tax payers, to the self-employed, landlords and most businesses. HMRC have confirmed that they will allow for some exemptions such as “for taxpayers who cannot engage digitally” and for those who are below the minimum threshold of £10,000 annual sales.
And, what does MTD actually mean?
The main changes ahead revolve around:
To begin with – tax returns will all be completed digitally.
Already, every small business owner and individual tax payer can register for their online account and access it in order to check their records and manage their details with HMRC. To file your tax return digitally, you will be required to use certain types of software which we will discuss in more detail later on.
And then … - the annual tax return will be scrapped and instead be replaced with quarterly tax submissions in which you will need to declare your income tax and national insurance obligation.
It is not the case that you will need to submit a full tax return four times a year, but rather, submit more accurate updates more regularly to HMRC. This will mean that you will no longer have to wait until the end of the tax year to know how much tax you have to pay. (Yippee!)
Can you please tell me how MTD will help my business and me?
Well, we are informed that the changes planned for MTD are designed to improve the current processing of tax returns – hard to believe we know. Here are some of the answers we are being told:
Better use of information:
There will no longer be a need to submit the same information time and time again because HMRC will be able to see the data that is stored elsewhere such as from employers, banks, building societies and other government departments. You will also be able to see what data HMRC holds for you and check at any time that it is complete and correct.
Tax in real time:
With more regular updates, HMRC will be able to collect and process information affecting tax as close to real time as possible to help prevent errors and stop tax due or repayments owed building up.
A single financial account:
MTD will mean that by 2020 you will be able to see all your tax liabilities and entitlements in one place so you can be clear on where you stand and allow for more efficient budgeting.
Being able to handle your tax with HMRC digitally means being able to update information any time anywhere with an internet connection.
As MTD will rely on software and apps, it can go as far as allowing you to handle your tax with even just a mobile device, making the process much more convenient.
Can’t wait?? Well, here is some idea as to when you and the rest of us need to start making tax digital:
What we understand so far is this:
Only businesses with a turnover above the VAT threshold (currently £85,000) will be required to submit digital records and only for VAT purposes from 2019 and it is planned that businesses will be required to submit other taxes digitally and quarterly from 2020 onwards
Like the couple above – it can be too much! So, we will be back with some info and insights in the near future. In the meantime if you are desperate to know more sooner please get in touch and drop us an email with your query to: firstname.lastname@example.org