Making Tax Digital – What’s it all about?
The government’s Making Tax Digital initiative will change filing tax returns for businesses small and large. But what exactly is it?
What is Making Tax Digital?
Most of us have heard the phrase Making Tax Digital by now, but not everyone is up to speed on what it means. Making Tax Digital is a government initiative to streamline tax and make it easier for both individuals and businesses to keep on top of their finances, automate the processes online and get their tax right.
What does it mean, really?
Ultimately, it means the end of the tax return for companies and individuals. This will be replaced by the online submission of tax data every three months.
That’s not as bad as it sounds, seriously. HMRC will pull in some data automatically, including information from other government departments and some data from your bank.
You’ll be asked to check this every quarter and provide any additional information required. This is not such a big change compared to filing VAT returns. And businesses will have the added advantage of knowing how much tax they will need to pay earlier in the year.
This sounds painful
Not really. If you are already using a cloud accounting software like Xero, then you are not really going to see many changes. If you are not already using a cloud platform, now is the time to move to one. Don’t wait until the last minute.
Switching now, will give you time to choose the right platform for you, get to grips with it at your own pace and ascertain what changes you might need to make internally to optimise its functionality. The benefits to your business in terms of efficiency and access to real-time financial data, will make it all worthwhile.
The biggest change is one of mindset. It will encourage businesses to think about tax throughout the year and help with strategic decision-making.
When will it happen?
It was due to launch in April 2018, but concerns about the time frame have led to an extension. The new roster looks like this:
- A pilot scheme will roll out from April 2018.
- In April 2019 businesses with a turner above the VAT threshold will need to keep digital records and file their VAT returns using commercial software.
- And finally, once this system has been confirmed to be working properly but no earlier than April 2020 all other businesses and individuals like sole traders will begin.
There will be limited exemptions for very small businesses (turnover below £10,000 was suggested previously but gave rise to a lot of protests) and those who are unable to engage digitally.
So, a sigh of relief all around, it’s not happening tomorrow. However, there is nothing to be gained from waiting until then and much to lose. Starting the process now, will mean that your business has plenty of time to scale up to it without too many hiccups. In addition, the simple fact is that, the efficiency, transparency and ease of access that cloud accounting offers, will benefit your business so much, that the sooner you start, the better.
Watch out for our blog next week, which will be on that very subject, as leaders in the adoption of cloud accountancy, we’ve got this.
In the meantime, speak to your accountant about what you need to do next or contact us now to hear how we can help your business now.
You can find HMRC’s full overview of Making Tax Digital here