An introduction to Making Tax Digital
The UK’s tax system is about to get a shake down – the government’s ambitious Making Tax Digital (MTD for short) initiative is set to revolutionise the way we deal with business finances. The plan is part of HMRC’s aims to become one of the world’s most digitally advanced tax administrations. Here, you’ll find all the information you need to get you up to speed with the whats, hows and whys of Making Tax Digital.
Making Tax Digital is designed to get rid of bureaucratic form filing by introducing a tax system that’s more effective, efficient and easier – helping taxpayers to get their tax right first time. HMRC expect digitalisation will drastically reduce the estimated £9 billion lost by the exchequer through avoidable mistakes each year and cut down business burdens by as much as £400 million.
While all this might sound like a monumental change, MTD doesn’t need to be daunting. We think it’s a great first step in bringing tax into the 21st century and will make tax management much easier for contractors.
What is Making Tax Digital?
MTD is an overhaul of the UK tax system, replacing manual processes with digital ones.
- All companies and organisations (including those with income from property) will soon be required to maintain digital accounting records. Paper records will no longer meet HMRC’s legal requirements.
- All companies will need to use HMRC recognised Making Tax Digital compliant software to maintain their records and submit returns.
In a nutshell, instead of filing annual tax returns, companies will send information to HMRC digitally at least four times a year through approved accounting software. This digital setup ensures your data is sent directly to HMRC’s systems; ending fiddly paperwork, reducing the risk of late filing and lost forms. But there are many other reasons why digitising your accounts can improve your limited companies finances and efficiency.
Who will Making Tax Digital impact?
HMRC is conducting a gradual roll-out of Making Tax Digital. The first big milestone is MTD for VAT. From 1st April 2019, if a company is VAT registered with a taxable turnover above the VAT threshold (currently £85,000) they will be required to:
- maintain their VAT records digitally
- file their VAT returns quarterly using HMRC-recognised software.
After April 1st, companies will no longer be able to manually complete a paper-based VAT return, or complete a return online at the HMRC VAT portal. Companies will need to start following the new rules from the beginning of their first VAT period starting on or after 1 April 2019.
So, I have to submit four tax returns a year?
Sounds like a hassle, right? Thankfully that’s not the case. If you’re already using online software to manage your finances, you probably already send most of this information to HMRC every three months anyway. If not, while you will be providing more regular financial updates online, this isn’t anything like the whole tedious annual tax return.
With all your business accounts kept up to date with real-time accounting software, such as inniAccounts, and with a lot of your admin and calculations automated, submitting your financial data to HMRC throughout the year should really be as simple as checking it over, filling in any missing information and hitting the send button.
If you’re an inniAccounts customer…
You’ll have already experienced how easy it is to submit a VAT return through our software, so this will feel like business as usual. We’ve been submitting VAT returns digitally for years and our award-winning online accounting software is now ready for Making Tax Digital and approved by HMRC. Find out how we’re taking the fuss out of MTD here.
What do I need to do?
Despite all the recent confusion surrounding Making Tax Digital, it’s not as scary as it sounds. All you (or your accountant) need to do is record your financial records and submit your VAT returns using functional and approved MTD-ready software. Everyone who’s VAT registered and over the threshold needs to do this, failure to comply will result in penalties, and there are no transitional arrangements. So, it’s best to ensure your company is ready sooner rather than later.
If you’re an inniAccounts customer…
Don’t worry! It’s all in hand. We’ve been working with HMRC for some time and our software has been given the seal of approval. We’ll be in touch with all our VAT registered clients over the next few weeks to let them know what we’re doing to ensure a smooth transition.
Compare our plans and find the service that’s right for you.
If you’re not already, now is the time to move to MTD-ready online accounting software
“If you aren’t using bookkeeping software of some sort already, then now really is the time to embrace it. It might be scary, but I expect once you’re in, you’ll never look back.”
Paul Nicklin, Technology Director at inniAccounts
Making Tax Digital doesn’t need to be just another obligation. This is your opportunity to streamline your accounting and business management. Keeping records and filing tax digitally gives you a chance to regularly check income, expenses and profit in your business – which will help you to make better decisions. If you’re unsure about MTD, make sure you go for a provider that supplies excellent support, such as our Practice Excellence award-winning team.
What’s next for Making Tax Digital?
Other components of Making Tax Digital, such as income tax and corporation tax, have been placed on hold until April 2020 at the earliest. HRMC’s timeline gets a bit woolly after 2019, further details have yet to be announced. They have warned that the wider extension of the MTD programme will be delayed as IT developers are refocused on Brexit customs delivery. But that doesn’t mean it’s not coming. If you’re not already, Making Tax Digital is a great motivator for going digital and the perfect time to start understanding the benefits of cloud accounting software.
Time to go digital
Whether you’re an existing client, looking for a hassle-free switch or simply want to brush up your knowledge – we’re here to make Making Tax Digital simple and provide you peace of mind. Preparing for digital tax starts with managing business accounts online. If you’re already using
Learn how inniAccounts can help you with Making Tax Digital today.