What is Making Tax Digital?
Making Tax Digital is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their financial affairs. It means the end of the tax return for millions.
- The government announced this vision for modernising the tax system in the March 2015 budget.
- In the 2017 budget it was announced that 3.1 million small businesses will be given another year (until 2019) before they are required to keep digital records.
- In the July 2017 announcement only businesses with a turnover above the VAT threshold (currently £85,000) will need to keep digital records and only for VAT purposes. This will come into effect from 2019.
- Businesses will not be asked to keep digital records or provide quarterly updates to HMRC for other taxes until at least 2020.
There are benefits to Making Tax Digital for individuals and businesses. They include being able to pay tax as you go rather than a large unknown bill at the end of the year, being able to log in and see where you are with your tax at any time, and working more regularly with HMRC can help prevent costly errors. You will also be able to see a single picture of your liabilities and entitlements in one place, so housing benefit, child benefit, tax credits, tax bills etc will all be available to view in your account. A bit like a bank account does now.
Businesses and individuals already have access to their own personalised digital tax accounts which are being regularly expanded and improved.
We are not yet sure of exactly how this will all come together but one thing we know for sure is that despite the inevitable delays Making Tax Digital is not going away!
How does it Affect Me and My Business?
You will need to invest in some form of online accounting, this will mean you can post all your businesses transactions quickly using the software. This creates your digital bookkeeping records. The software providers will be working closely with HMRC to make sure that the software is compliant to all requirements to give you peace of mind that in turn you are always compliant with HMRC.
Secondly you are advised to work with a bookkeeper. The role of a bookkeeper is changing dramatically. A traditional bookkeeper would sit and input all your receipts and invoices etc into an accounting system. They would have to log every transaction against something called a nominal code then reconcile all your business transactions against your bank statement and prepare everything for a VAT return or ready for your accountant to produce your final set of accounts and company tax return. A tax return would be a high level view of the company financials and unless asked for by HMRC (which can happen in an investigation) would not contain all your business transactions.
This is where the big change is happening as HMRC will be looking for digital access to all your transactions, so they’ll be looking for more detail than previously in most cases. As mentioned before the actual format is not yet known but what we do know is that working with the right software and a trusted bookkeeper who knows how to organise and interpret your financial data will mean compliance is all taken care of, leaving you nothing to worry about.
But if Making Tax Digital is delayed why should I worry now?
We were expecting delays – it’s an HMRC led initiative after all 😉 But we know Making Tax Digital won’t go away. More than that, the steps you need to take actually help your business so it will benefit you to start getting set up for it now with plenty of time to get used to it.
With all the great cloud accounting software now on the market you can find a system at the right budget for your business and then your bookkeeper can work with you in real time to health check your accounts, fix any mistakes. You know that tax rules are complicated: if you send the wrong information you could end up paying too much tax or facing heavy fines. How scary would it be to send off all your transactions to HMRC when they have not been professionally checked?
Team 4 are your experts in the cloud and we receive up to the minute information on the changes HMRC are bringing in. If you wish to find out more about what we have talked about in this article please don’t hesitate to call us or pop in for a coffee and a chat.
We would be delighted to see if we can help!