Tax and digital – arguably two very scary words for some. Put them together to form Making Tax Digital, and they have the potential to cause a frenzy!
But as we continue to move to a more sustainable way of living, why shouldn’t tax become more eco friendly too?!
In April 2022, Making Tax Digital (MTD) for VAT applied for all VAT-registered businesses. Although the date of going digital for income tax has been delayed to 2026, it’s always better to be prepared. As the saying goes – fail to prepare, prepare to fail.
To outline what you need to know about making tax digital, we asked Making Tax Digital Expert, Alex Nye from our Chester office, to explain what it really is, explain the process of going digital, and why you shouldn’t put off digitalising your tax.
Take it away Alex…
The gradual digitisation of the accountancy world has been underway and a work in progress for some time now. Whilst there’s growing excitement of the thought of paper records being a distant memory, there’s the understandable worry and apprehension that comes with making tax digital.
However, it’s inevitable that in just a few years, digital systems will assist in moving to a time saving, incredibly efficient way of managing and organising important financial documents. Below I’ve briefly ran through what exactly Making Tax Digital (MTD) is, with a note of those important dates you might want to add to your diary (if you buy diaries years in advance!) and what the positives are of tax and digitisation combining!
What is Making Tax Digital?
To put it simply, MTD is a government initiative that was created with the intention to improve tax administration. This is done by legislating that businesses and taxpayers keep digital records, and make regular submissions to HMRC through compliant software.
The initiative was introduced due to the risk of mistakes and errors that can be made when just relying on records that are kept manually, by using pen and paper or boxes of physical records.
Despite the digitisation of tax bringing benefits to HMRC, as they can accurately collect taxes, it can also bring benefits for business owners in automating, simplifying and gaining greater insights into their company’s financial position.
The process of going digital
It’s important to note that you will not need to do anything to enrol for Making Tax Digital. If your business is already registered for VAT, then HMRC will have automatically updated your account for Making Tax Digital, and you will need to submit your VAT returns through digital software. With this now being a legal requirement from HMRC, if you don’t have a digital software solution then please make contact with us as soon as possible to get you set up on a platform that best suits your needs.
For the income tax side of Making Tax Digital, HMRC haven’t yet opened the registration, but this shouldn’t stop you moving early on this and making your records digital now, to take advantage of all the brilliant benefits I delve into in just a sec…
Timeline of Making Tax Digital
So, let’s talk through those all-important dates coming up. As I mentioned earlier, in April 2022, going tax digital for VAT applied for all VAT-registered businesses.
The date of going digital for income tax was originally meant to be in April 2024, but the Government pushed this back by a further two years, making April 2026 the new deadline.
Exactly a year after, April 2027, will see MTD for income tax for those who are self-employed, and to landlords who have an income of more than £30,000.
We don’t have a suggested date yet for when MTD for income tax for partnerships will come into play, but this is the last step (at the moment) which we know is coming.
The benefits of Making Tax Digital
Now you know what MTD is and can note down those important dates, it’s good to be aware of the benefits of going digital with tax, to really make sure you avoid putting it off!
Less paperwork;
Be honest, no one has ever enjoyed the annual sort through of receipts, invoices and documents, which is why MTD will make your life a whole lot easier. Switching to MTD-compliant software allows you to keep an eye on all of your business’ incomings and outgoings online. All you’ll have to check is that all of the data is correct, and update it each quarter. Now doesn’t that sound like a breath of fresh air?
Less mistakes;
Tax returns are time-consuming- I get that’s probably the understatement of the year! They can also be complicated and once you press submit, there’s no guarantee that they’ll be 100 percent correct. Not to mention if you miss the deadline for filing your tax returns, then you’re hit with a fine depending on how late you were.
Providing you have MTD compliant software, you’ll never have to worry about those easy to make mistakes again.
Allows you to focus on other priorities;
When you have to deal with financial updates and tax returns, it can be extremely frustrating knowing you’d rather be focusing on projects, or spending valuable time with clients. MTD saves you cherished time that can be better spent on implementing the growth of your business.
Real tax-time information;
Isn’t it annoying when you have to wait until you submit your tax return to be able to view important information. With MTD, you’ll be able to keep an eye on things constantly throughout the year.
You’ll have a better understanding of what you owe, so you can make sure everything is in order long before the deadline for tax returns arrives.
Don’t put it off
With no more pesky paperwork, the fear of making mistakes on your tax return, and being able to focus more on your business and it’s potential, MTD shouldn’t be something to be frightened of. If you were to take anything away from this article, it’s to make sure you don’t put off moving over to the digital side- trust me, it’s really not as scary as it sounds!
