What is Making Tax Digital (MTD)?
Making Tax Digital is an initiative set up by HMRC, designed to be the most fundamental change to the administration of the UK tax system for at least 20 years. HMRC believes that Making Tax Digital will result in a tax administration that will be more effective, and efficient, as well as being easier for taxpayers to submit their income and expenditures correctly.
By moving to digital integration, HMRC can eliminate existing paper-based processes. This will streamline actions, allowing businesses to devote more time and attention to maximising business opportunities and reducing costly mistakes.
Based on the latest tax gap figures (2016 to 2017), HMRC believe that Making Tax Digital will also save the Exchequer over £9 billion a year in losses due to tax errors/mistakes by ensuring improved accuracy which digital records generally provide. To ensure this, most software products will have built-in assistance. As the information will be sent directly to HMRC from digital records, thereby avoiding transposition errors, there should also be a reduction in the amount of tax lost to avoidable errors.
When did it start?
MTD first went live from 1 April 2019 and is applicable for all VAT registered businesses with taxable turnover over £85k (the current VAT registration threshold), whereby VAT Returns are now required to be submitted via a software package only.
There was an introduction period allowed by HMRC called the “soft landing period” between 1 April 2019 to 31 March 2020, for businesses to establish digital links between their accounting data and the MTD compatible software. During this time there were no penalties or interest enforced by HMRC during this period. This period has close to ending so it is essential you are compliant from 1 April 2020 to avoid penalties and interest.
Businesses under this threshold will be exempt until further notice, unless they choose to opt-in to MTD ahead of their deadline. MTD for income tax and corporation tax will also be introduced at a later date.
What you need to know about Making Tax Digital
Paper records – As paper records will no longer be sufficient, it will become mandatory for almost all businesses and landlords (self-employed, partnerships and limited companies) to use software or a spreadsheet to keep accounting records.
Quarterly reporting –There will be a requirement to submit updates to HMRC quarterly, directly from MTD compliant accounting software. This must be submitted within one month before the end of each quarter. This is currently only in place for VAT submissions.
How we can help
At McCabe Ford Williams, we are experts in the leading digital tax software packages and can assist you with the important decision of the best package. We consider options based on your requirements and talk you through the benefits – including how best to implement them – regardless of whether that is a cloud-based solution or not.
To book a free MTD consultation, complete our contact form or call your local McCabe Ford Williams office. For further information visit gov.uk or have a read of our recent blog “Everything you need to know about making tax digital”.
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