Making Tax Digital is a key part of the government’s plans to make it easier for businesses to get their taxes right. MTD aims to transform the UK tax system by ensuring businesses digitally record and update income tax self-assessments, value-added tax and corporation tax.
Businesses will be mandated to use the Making Tax Digital for Business system from April 2019 to meet their VAT obligations. Once the system has been proven to work, the Government will likely widen the scope of the system but not before April 2020 at the earliest.
MTD will apply to businesses who have a turnover above the VAT threshold (currently £85,000) - the smallest businesses will not be required to use the system yet, although they can choose to do so voluntarily.
The government recognises that the majority of businesses want to get their tax right, but the latest tax gap figures published by HM Revenue and Customs (HMRC) show that too many businesses find this difficult. Over £9bn is lost annually in tax due to errors and mistakes. This new digital tax system aims to provide the technology required to improve the accuracy to get taxes right the first time, not only reducing the tax gap, but also reducing the cost, uncertainty and worry that businesses face when HMRC is forced to intervene to put things right.
From April 2019, VAT registered businesses (including self-employed and landlords) with turnover above the VAT registration threshold will have to:
The reason this needs to be done using compatible software is, so the information kept on your digital records can be pulled if required.
Software will help businesses to stay on top of their record keeping, allowing them and those who represent them to understand better how their business is performing. Key benefits include:
HMRC estimates that the behavioural impacts of Making Tax Digital will contribute over £1bn to the Exchequer by 2022 to 2023.
Penalties and fines will be imposed for failure to comply with the new MTD system. A points-based model with taxpayers receiving a point every time they fail to submit on time will be introduced.
Even though the new digital tax system isn’t mandatory until April 2019, it is advisable to start planning now. A good start would be to understand if your current accounting software is compatible with the new digital tax system by speaking to your software provider.
If you would like to speak us about MTD compatible software, please call 01482 210999 or email [email protected]