Making tax digital is an HMRC initiative, aiming to transform the UK tax system into one of the most digitally advanced tax systems in the world. Small businesses can help you store and submit all your tax information together online by MTD-compatible software. This change will make it easier to file tax correctly, without any delay. MTD has made it mandatory to reduce the avoidable mistakes that currently account for £8bn in uncollected tax each year. Making Tax Digital will change the way tax is filed and will change the expectations of your clients. Your job is to ensure all clients are aware of the changes and should be encouraged to go digital regardless of if they are above the VAT threshold of £85000.
What changes did HMRC implement as part of Making Tax Digital? (MTD)
As per the second bill of 2017, HMRC made changes to MTD and are as follows:
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MTD for VAT gets mandatory from 1 April 2019.
- Businesses with a turnover above the VAT threshold of £85000 will have to store their records digitally.
- MTD for VAT gets mandatory from 1 April 2019.
- Starting from April 2022, it is expected that all VAT-registered businesses will be required to comply with Making Tax Digital for VAT.
- Starting from April 2023, it is expected that self-assessment taxpayers will be required to comply with Making Tax Digital for Income Tax.
Making Tax Digital (MTD): What will happen next?
Making VAT digital
It is expected that there could be an expansion in the scope of Making Tax Digital for VAT. VAT-registered businesses with a taxable turnover of less than £85,000 will be required to comply with MTD rules starting on or after April 2022.
Making Tax Digital for Self-Assessment
Making Tax Digital expected to be implemented in 2023 for income tax. Those self-employed businesses and landlords with annual business or property income above £10,000 needs to comply with the MTD rules for Income Tax Self-Assessment beginning on or after 6th April 2023.
Making Corporation Tax Digital
The next phase in the MTD will consider the corporate taxpayers. However, HMRC has advised that MTD rules for Corporation tax could come into effect after 2026.
Benefits of MTD (Making Tax Digital)
There are a lot of discussions, especially within the accounting industry about whether MTD will be positive or negative. We believe that MTD is a good and necessary advancement of the UK tax system. Here are a few reasons why:
- It will save valuable time for businesses, accountants & HMRC.
- Taxation will be more precise, as there will be fewer opportunities for errors, miscalculations, and fraud.
- Filing tax returns will be simple with the use of compatible software.
- MTD will result in an increase in the quality of record keeping.
- Using a cloud-based solution will improve the efficiency of business management. It will save time when gathering & inputting data.
How to Prepare Small Businesses for Making Tax Digital?
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Once your staff is knowledgeable, please encourage them to make MTD a part of their conversation when communicating with clients.
- Add an MTD reminder in every e-mail or letter you are sending to your clients. It must make them aware of the upcoming deadlines.
- Calculate how many clients are under & above the £85000 VAT threshold so that you can prioritise the clients that need to be MTD-compliant.
- Calculate how many months remain until April 2022, so you can plan for making your clients MTD compatible.
- To make this significant change possible, advise your clients by organizing special meetings & seminars.
- Provide clients with proper training material & documents to teach how MTD will affect them.
- Tell clients below the threshold about the benefits of MTD-compliant software and encourage them to adopt the new digital method.
- Early adoption of transforming the paper tax records (tax information in the form of manual figures, excel spreadsheets) into a digital form will make them more familiar with the software.
How FinacBooks help?
FinacBooks is a leading platform where you can search for qualified accountants offering a range of services like Bookkeeping, VAT Registration & Return filing, Payroll registrations and RTI returns, Pensions and auto-enrolment, Tax investigation service, Business plans, management accounts and more. We have better options with us where you can use automated HMRC compatible software for filing VAT returns which help you make MTD compliant and saves you from incurring fines and penalties.
Making tax digital is a great initiative taken by HMRC. They have taken the necessary steps to improve the UK tax system from paper and spreadsheet records into a digitally advanced tax system. From April 2021, HMRC has already phased out the option to submit returns via XML, and by 2022, you will be required to exchange information with HMRC via digital links. It will take less time to submit a higher standard of work, which will lead to fewer avoidable mistakes and HMRC collecting a more accurate amount of tax. Want to take more information and guidance about how to prepare your business for MTD? Click on Finacbooks to know more.
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