So, what is it?
Making Tax Digital is essentially what it says on the tin. HMRC’s aim is to ‘become one of the most digitally advanced tax administrations in the world’. They plan on doing this by transforming the tax process into a completely digital system, with the hope of reducing the capacity for errors and make it easier for businesses and individuals to keep on top of their taxes.
Basically, if you are not already, you or your bookkeeper will need to start keeping your records digitally using Making Tax Digital (MTD) compatible accountancy software. This software will then be able to transmit this data directly to HMRC, cutting out the need to enter figures manually on HMRC’s website.
If you are VAT registered then not a lot will change and you will still have to submit quarterly VAT returns. The only difference is that you will have to keep your records digitally and submit your VAT returns via your MTD compatible software.
For income tax, businesses and individuals will have access to their own personalised online account. This account will, for the first time, hold all your tax information in one place, meaning you will no longer have to provide HMRC with information they already have, such as PAYE income.
Via your MTD compatible software you will be required to update HMRC with your business transactions on a quarterly basis (or more regularly if you choose to).
- No more madly scrambling around at the end of the year, collecting up a years worth of receipts and invoices and desperately trying to remember what everything was.
- You’ll be able to see an estimate of what tax you will need to pay at the end of the year based on the information provided to date, enabling you to better manage your budget. You’ll even be able to pay your tax bill as you go if you would like.
- It will be much easier to communicate with HMRC and update your details via your online account.
- Through using accountancy software and submitting more regular updates you and your accountant will be more able to keep on top of your finances.
HMRC is rolling out Making Tax Digital (MTD) in stages so as to allow individuals and businesses to adjust to the change.
So for now, you only need take action if you are VAT registered and have a taxable turnover above the VAT threshold (£85,000), as by April 2019 it will be mandatory for you to keep your VAT records digitally and submit VAT returns using MTD compatible software.
NOTE: the deadlines for sending VAT returns and paying VAT are not changing, it’s just the method of sending them that is changing.
The making tax digital pilot for income tax is available on a voluntary basis, and if you are a self-employed business or a landlord you can sign up now, however Making Tax Digital will not be mandatory for income tax or any other tax until at least 2020. So don’t panic- there’s plenty of time to sort out what you will need to do!
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Also, don’t forget! Here at Bedford Accountants we are here to help! If you do your own bookkeeping then we’d be happy to discuss your software options and we can then help make sure the information is correct for submission. OR if you’d rather, we can take the whole lot off your hands! All you’d need to do is give us your paper records and we can take it from there!
Give us a call today and find out how we can help.