What is making tax digital?
Making Tax Digital (MTD) is a key part of the government’s plans to make it easier and more efficient for individuals and businesses to get their tax right.
From 1 April 2019, VAT-registered businesses above the threshold of £85,000 will have to keep digital records and submit VAT returns using compatible software.
The government has given assurance that it will only widen the scope of Making Tax Digital for Businesses beyond VAT to include income tax and corporation tax to name a few, when the initiative has been proven to work well, but not before April 2020.
It is estimated that each year the government loses out on £9bn in unpaid taxes resulting from errors, while the overall tax gap is a staggering £34bn, which explains why it’s keen to introduce a new system that will make this a thing of the past.
Who will be affected by MTD?
At the moment, the focus is on VAT-registered businesses with a taxable turnover exceeding £85,000, and their accountants, that are most affected by digital taxation.
Many businesses aren’t aware that it affects them – and those that are aren’t, aren’t prepared for managing their finances online or submitting returns to HMRC every quarter. Put simply, if you use spreadsheets to manage your accounts – or hand paper records to your accountant every year - you’ll have no choice but to adopt a new, MTD-compliant method. Even large finance teams who have a robust finance solution already in place will need to think about how they submit VAT and how this process needs to change.