Making Tax Digital - What The New Rules Mean For You
Posted 3 years ago by Tracy
Since coming into force in April 2019, the government’s Making Tax Digital (MTD) programme has required all businesses with a turnover above the VAT registration threshold of £85,000 to record their tax affairs digitally and supply this information to HMRC on a quarterly basis.
Earlier this year it was announced that this will be extended to include VAT-registered businesses with a taxable turnover below £85,000 from April 2022. Then, from April 2023, most smaller businesses and landlords will also be included, as MTD will apply to taxpayers who file income tax self-assessment tax returns for business or property income over £10,000 annually. This will potentially bring millions of additional businesses and landlords into the MTD scheme.
While this may seem daunting, particularly for small businesses, the intention is actually to make company tax affairs more efficient and more accurate, potentially even reducing the burden on company owners. So how do you ensure you’re complying with these new rules without adding to workloads?
How to plan for changes to MTD
While these new rules may seem some way off, early planning will ensure the transition goes as smoothly as possible and, as all businesses can already voluntarily manage their records digitally, making changes now will only be beneficial.
Approved Suppliers
The simplest way to ensure compliance will be invest in or upgrade your accounting software to one that is compatible with the MTD platform - look for a government approved supplier, not just to ensure compliance but also to benefit from streamlined processes and ongoing development to adapt as rules change over time. Approved suppliers will be in regular contact with HMRC and so will be better placed to respond quickly as needed.
Simple user interface
Whether you’re a landlord, bookkeeper or an accountant, keeping up with your tax obligations, or those of your clients, needs to be as easy as possible, so look for accounting software that offers features such as centralised invoice management, real-time expenses tracking and clear views of the current financial situation. The more user-friendly the platform you choose, the easier it will be to keep on top of the new requirements and the better informed you’ll be about the state of your finances.
Spreadsheet support
It is still possible to submit records via spreadsheets and for those with simple tax affairs, this may still be a preferred option. In this case, look for a solution that includes bridging software that will allow you to import these documents into an MTD-compliant environment.
The benefits of MTD
While any change can bring about uncertainty, the good news is that MTD actually offers a wide range of benefits, both for businesses and the government. For example, independent research commissioned by HMRC showed that businesses within MTD, which fully integrate their accounting and tax software, report spending less time on their tax. In addition, micro-businesses that use software to manage their accounts have over 10% higher productivity, according to the Enterprise Research Centre’s Micro Business Study.
Also, as under MTD businesses and landlords will switch to sending quarterly summaries to HMRC it should help with cash flow planning for tax payments while making tax compliance less time consuming in the longer term. For those transitioning from manual systems, financial data is likely to be more consistent reducing the likelihood of mistakes and the penalties this can bring, while the improved accuracy that digital records provide, along with the fact that information is sent directly to HMRC from the digital records, avoiding transposition errors, will reduce the amount of tax lost to these errors, and with avoidable mistakes said to have cost the Exchequer £8.5 billion in 2018 to 2019, that is a not insignificant amount.
Making Tax Digital is designed to give the UK one of the most digitally advanced tax administrations in the world and by offering early warning of upcoming changes, HMRC has put companies in a strong position to prepare for what’s ahead and ensured accounting software can be updated to include these new requirements. To find out more about how we can support you on your journey to MTD compliance, visit our Making Tax Digital page, or read our what is making tax digital blog post or get in touch with us via our support pages.
Further Reading
Making Tax Digital: New rules come into force on 1 April 2022