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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.
MTD will improve accuracy by reducing opportunities for error or miscalculations.
This process means more automation for businesses, allowing them to access all their VAT information in one place and work collaboratively.
By using the appropriate software, MTD will make it faster for businesses to record and file tax returns with automation and the opportunity for monthly tax updates.
How can you prepare?
In order to get ready for MTD, businesses need to use software that complies with HMRC systems. The software should:
- Keep digital records according to MTD regulations
- Maintain records digitally in line with MTD regulations
- Digitally send VAT returns containing/alongside information held within the software
- Provide VAT data to HMRC where necessary
- Access information sent by HMRC via an API platform
How can Advanced help me get MTD ready?
At Advanced, we have thousands of finance customers using applications from us every day. Because of this, we have identified Making Tax Digital as a priority for our product teams.
We are working alongside HMRC to provide current and new customers with a solution which will assist their compliance with MTD.