The aim of this initiative is to modernise the tax system, achieve tax simplification and make the whole process of administration more efficient. All of your tax information will be in one place (your digital account) and you will be able to pay tax based on your business activity during the year. You can upload and update your tax account in real time.
Will it affect me?
If you own a business, you are self-employed and you pay income tax, national insurance, VAT or corporation tax then it is quite likely you will be affected. This means you could be required to keep track of your tax digitally using MTD compatible software, and then to update HMRC at least quarterly via your digital account. Eventually this will abolish the annual tax return. This will be the law and there will be penalties for non-compliance.
What do I have to do?
You will need to open and log into your digital account. Everyone will be allocated one through the current Government Gateway. Then you will need to ensure that your accounting software can update this account at least quarterly. For most businesses, this means a move away from desktop and onto Cloud based accounting software. You will use digital (Cloud) software to maintain your business records and to provide updates directly to HMRC – quarterly updates will need to be submitted within a month of quarter end, and an end of year activity report will be due within 9 months of the end of the accounting year.
When is all this happening?
Making Tax Digital starts with businesses above the VAT threshold limits (currently £85,000) for accounting periods commencing on or after 6 April 2019. Those affected will be required to keep digital records for VAT purposes. By 2020 it is most likely all other businesses will have to comply.
So is there any good news?
Contact us to start a discussion now; more than 1 year away may feel like a long period of time, but updating your systems, choosing a new (Cloud based) accounting software package, associated set-up & data transfer all take time. And you don’t want to have to make these decisions in a rush.
Proactively looking at Cloud-based accounting software, such as QuickBooks or Xero, will not only put you in a good position insofar as making tax digital is concerned , but will also allow you to explore other benefits & efficiencies these products can offer your business.