You will have now all heard a vast amount of talk regarding the Government’s new scheme for ‘Making Tax Digital’. This is a new scheme to make it easier for businesses and people to stay on top of their tax affairs and decrease the amount of errors whilst calculating tax returns. The following tax related items will be affected by MTD:
- Income Tax Self-Assessment
- Value Added Tax (VAT)
- Corporation Tax
Currently millions of people and businesses around the UK complete an annual tax return. Considering the amount of data, you must consider whilst calculating an annual tax return, it is highly easy to make errors. With the new scheme, the idea is to reduce the amount of errors by the more effective use of third party information. Therefore, the requirement is to provide HMRC with quarterly updates.
When a Business or person fills out a tax return, most of the information being submitted is already available to HMRC from sources such as Banks, Agents or other Government departments. HMRC plan to create a single platform, for each customer, that accesses all information to reduce information required to be provided – it is called a ‘Digital Tax Account’. The Digital Tax Account is aimed, by 2020, to look like a bank account where by you would be able to view a comprehensive financial position on one single screen.
HMRC no longer accept paper-based documentation, therefore all book-keeping and record keeping must be digitalised, i.e. using a software such as QuickBooks which will be compatible with MTD. Similarly, with VAT, it is only mandatory for you to comply with MTD if your turnover is higher than the threshold (£85,000.00 annually). However smaller businesses below this threshold can opt in if they wish to do so.
- Making tax digital does not become mandatory until April 2019, however people have already begun to prepare for changes
- It will be mandatory for all businesses with turnover of over £85,000.00 in April 2019
- MTD requires all businesses to use software that are compatible with MTD
- Tax related items are to be updated quarterly