The Making Tax Digital (MTD) initiative was first proposed in the 2015 Spring Budget. It is an essential part of the government’s strategy to make the tax administration system more efficient, effective and easier for taxpayers.
What does this mean for you?
Making Tax Digital aims to make it simpler for business-owners, landlords, and the self-employed to complete their taxes correctly and keep on top of their affairs, “meaning the end of the annual tax return for millions.” Instead of having to complete one long daunting tax return a year, you will simply need to provide HMRC with quarterly financial updates through your preferred software or app, such as FreeAgent. This will allow HMRC to collect and process tax information “as close to real time as possible”, to help avoid errors and prevent any outstanding taxes from building up. So, you won’t have to wait until the end of the year to find out how much tax you actually owe.
When will Making Tax Digital come into effect?
A provisional roll-out of the scheme has already begun. Every small business owner and individual taxpayer now has access to a digital account that they can use to check their records and manage their details with HMRC. This is the same account where you will be required to update your business finances for HMRC. The government has also stated that every digital account will provide an “increasingly personalised picture of [an individual or businesses] tax affairs, along with prompts, advice and support through webchat and secure messaging.”
From April 2019, if your business’ turnover is above the £85,000 VAT threshold you will need to manage your VAT records digitally and report figures to HMRC each quarter. For smaller business below the VAT threshold, MTD will not impact you until 2020. However, you can voluntary take-part if you wish to do so.
For a timeline summary of how MTD has or will be implemented, see below:
- April 2017: Maxing Tax Digital trial began for those who voluntarily subscribed.
- July – December 2017: HMRC provided taxpayers with an overview of their tax affairs in one digital account per business or individual. HMRC also began a preliminary roll-out of Making Tax Digital for VAT.
- Spring 2018: The live trial of Making Tax Digital for VAT begins.
- April 2019: Businesses with a turnover above the VAT threshold are required to keep digital records and submit quarterly returns for VAT purposes only. Smaller businesses can voluntarily keep digital records.
- April 2020: HMRC plans to widen the scope of Making Tax Digital.
Is anyone exempt from MTD?
If you have a religious belief incompatible with the use of electronic communications, or you cannot make an electronic return due to disability, age, or remoteness of location, then you will be exempt from the Making Tax Digital initiative.
Software providers such as FreeAgent are actively working with HMRC to help with the smooth implementation of MTD, to simplify the shift for small businesses. At K&B Accountancy Group, FreeAgent is included in every monthly package we offer. This online portal is designed specifically for small business and the self-employed, to make it easier for you to stay on top of your day-to-day bookkeeping. If you’re not confident with your tech skills, don’t worry, our expert accountants are well versed in online accounting software and have vast experience using FreeAgent, so are always happy to help with any concerns or questions you may have.
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