Tax Advice
What does “Making Tax Digital” mean for me?
Aug 25, 2021
Aug 25, 2021
Making Tax Digital (also referred to as MTD), is not a new concept and may be something that you have heard of already. The new digital initiative was introduced by HMRC on the 1st of April 2019 and is set to have a number of different phases, each relating to different taxes. This initiative was introduced as part of a phased approach for the self-employed and small business owners to embrace digital recording, ultimately becoming completely paperless.
Within this blog, we will outline what Making Tax Digital is, the key deadlines you need to be aware of and the different phases of implementation.
Making Tax Digital is a “bold vision for a digital tax system” set by HMRC, which will apply to a wide range of taxpayers, most businesses, self-employed individuals, landlords and individual taxpayers. MTD encourages these individuals to complete digital tax records and returns, using compatible software. HMRC introduced this to make it “easier for individuals and businesses to report their income accurately and keep on top of their affairs.”
As previously mentioned, this initiative has a number of different phases, with the first being introduced in 2019 “Making Tax Digital for VAT”. This related to keeping digital records and using accounting software to complete VAT tax returns. This is only applicable to VAT-registered businesses with a taxable turnover above the VAT threshold of £85,000.
Here is a summary of the Making Tax Digital deadlines:
Although some of these deadlines may seem far away and in some cases it might not be compulsory for you to do this, you can still sign up for a digital tax returns pilot scheme here. It would be a good time to update your processes now for a seamless transaction in the future and consider using accountants who are specialised in this area and understand digital changes.
It is also worthwhile preparing yourself for these changes as these deadlines imply that you need to be ready by that point and it is not a simple next day switch.
Firstly, it is important for you to understand whether you are impacted by MTD and if so, what are the deadlines that apply to you. There are a few organisations which are exempt from MTD.
If you are already using accounting software to manage your affairs, you should ensure that the software you are using is HMRC compatible. Your digital records don’t all need to be in one place (although that will definitely help). Xero and Quickbooks are compatible software, however HMRC have provided a full list of compatible software here.
If you are not familiar with using accounting software, you will need to allow for some time to get used to this so we would recommend implementing this prior to your deadline. This will help you get used to this new approach and ensure everything is in order in time for your deadline.
It is also important to ensure you are set up for quarterly reporting as this will be time you need to schedule in, if it isn’t already.
Working with an accountant that specialises in Xero and Quickbooks will make this transition easier as they will be able to provide you with guidance on an effective process. In addition to this, you may want to consider outsourcing your bookkeeping for a completely smooth and trouble free experience.
It may seem daunting at first, especially if you are not using accounting software presently, however there are a number of benefits you can look forward to:
If you’re looking for support, our accountancy and tax specialists are available to support you through this transition. Feel free to contact us: [email protected] / 01932 485 325
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