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Making Tax Digital is not a new thing. The UK Government announced its plans back in 2015, when it promised to modernise the tax system, to make it fit the digital world in which we all now live. We have a number of accountants and specialist bookkeepers here at The Business Village, along with our in-house expert, The Business Village’s Management Accountant Jonathan Noble.
Here’s our quick guide to what ‘Making Tax Digital’ is all about and why you need to take notice…
The first wave of implementation affects businesses that are VAT registered. This wave begins on 1st April 2019, when all VAT returns will have to be submitted to HMRC, using compatible software. You may have seen accounting software platforms being upgraded to meet the requirements of the new system, or adverts for compatible software that you can subscribe to or purchase. The key change is the end of paper records and everything having to be logged digitally. If you have an accountant, they should already have processes in place to deal with the changes and will be able to tell you what you need to do.
For organisations and people who pay tax in the UK and submit a tax return, whether it’s as a sole trader, if you’re self-employed, or an employer; if you have income from other sources, or abroad, etc. – essentially, anyone who is self-assessed – the implementation date is later. The Government currently has this set for April 2020. As with VAT registered businesses, all records will have to be kept digitally and uploaded to HMRC via compatible software. Again, if you use an accountant, they should have processes ready for this change.
There are a number of reasons for making the change to digital. Considering that many of us now do our banking, manage our utilities, bills, services and accounts via online platforms or apps, it makes sense to modernise the tax system to keep up with available technology. The aim is to make the process simpler for businesses. However, it does also mean more frequent reporting and an end to the singular annual tax return. Quarterly uploads will be required, which will make it easier to keep on top of things and avoid any last minute panic around finding information from months before…
Everyone who submits a tax return to HMRC will be able to see an up-to-date picture of their current tax status. Businesses will be able to plan ahead more easily as they will be able to see their tax liability as it happens. Individual tax payers will also be able to see their tax account in ‘real-time’, giving them a clearer picture of what they will be likely to pay at the year end.
HMRC will continue to apply penalties to businesses and individuals that fail to meet deadlines or comply with reporting requirements. The system will have a ‘settling in’ period, but the best thing to do is to begin working to the new requirements as quickly as possible. That way, if you do encounter any issues, you can get them ironed out before it becomes a major problem.
Hopefully, you are already well on the way to being prepared for Making Tax Digital and we hope you find this overview useful. If you do need advice, here’s a short list of businesses based at The Business Village that would love to help you out.
or you can contact Jonathan Noble directly here.
