As we continue to accelerate into the digital era, more government initiatives are being put in place to push businesses towards a digital-first approach. A key example of this is the Making Tax Digital (MTD) legislation, which has been on many people’s radars for some time now.
The purpose of this legislation is to speed up the transition towards digital tax submissions for all companies and individuals, moving them away from old-fashioned methods as quickly as possible.
The benefit of this is that the process becomes more efficient, saving time and money for both the government and companies. It also roots out any fraudulent activity while ensuring all taxes are submitted in the same format.
There’s a list of Making Tax Digital software solutions that have been approved by HMRC.
Some of the Making Tax Digital deadlines have already been and gone. For example, in April 2019, this initiative came into effect for all VAT-registered businesses with a turnover greater than £85,000. And then in April 2022 this was extended to all VAT-registered businesses with a turnover below £85,000.
What’s the latest on Making Tax Digital?
As these dates have passed, many have perhaps put Making Tax Digital to the back of their mind, assuming they’re aware of the main facts. But it’s important to stay up to date with the latest Making Tax Digital rules because any new legislation can change in the blink of an eye.
Dates and deadlines can change abruptly too. Parts of the initiative may have already come into effect, but there’s a long way to go, with some cut-off points still on the horizon. Therefore, MTD is as relevant as ever, and should still be central to the thinking of businesses and finance teams alike.
Here’s what we know with regards to the deadlines that are still looming.
Making Tax Digital timeline
- April 2024 – Making Tax Digital for Income Tax Self Assessment (ITSA). This is when MTD applies to the self-employed / sole traders and landlords with an annual gross income of £10,000 or more.
- April 2025 – Making Tax Digital for ITSA extends to general partnerships with an annual income of £10,000 or more.
- April 2026 – Making Tax Digital for companies that pay corporation tax. This is an estimated deadline as we haven’t had confirmation of an exact date yet.
Tips to prepare for Making Tax Digital
We have highlighted four aspects businesses should focus on to prepare for upcoming tax changes:
1. Ensure staff are fully trained
As MTD will trigger a new way of working, staff must be trained on its nuances if it is to be implemented successfully. Any individual involved with tax submissions should be educated on the ins and outs of the legislation so they can adhere to the rules. Failure to do so could lead to costly breaches for the business.
Submissions will be completed in a new way (with new processes), so staff will need to be shown how this works and where they personally fit (in terms of accountabilities).
Technology can be leveraged for employee training to make the shift more seamless. This doesn’t just include the digital systems that will be used for submissions (which they should of course be trained on), but also solutions like tasks management tools and instant-messaging services.
2. Research and keep up to date
MTD is a vast change for many UK businesses (and the government), meaning there’s a substantial amount of testing required, as well as IT support and due diligence. With so much happening to facilitate this change, it’s possible there could be delays. So, you should stay up to date with the latest developments and HMRC news.
3. Choose the right software
Before Making Tax Digital, less than 15% of VAT returns were filed using software, but it will no longer be possible to avoid this method. Therefore, businesses must weigh up vendor options if they haven’t done so already.
It’s essential to choose Making Tax Digital Software that is HMRC-approved for VAT submissions. A capable and compliant solution should have capabilities around:
- Creating digital versions of paper receipts.
- Automatically calculating the tax your business owes.
- Updating transactions every day to keep on top of bank reconciliation.
- Pulling data straight from your invoicing software, point of sale (POS) system, or bank account.
4. Embrace change
Change can be difficult. However, Making Tax Digital is a legal requirement, and it can serve as a great opportunity for your business to begin its journey towards digitisation. MTD is ultimately being implemented to take away the stress involved with tax-related activities, while reducing the amount of paper used and improving the flow of data between your company and HMRC. Through tax planning, it even gives you the potential to lower your owed amount.
Study the list of government approved Making Tax Digital solutions so that you can implement a system that is compliant. At Advanced, we’re here to support you with MTD, and our Making Tax Digital software, Business Tax Portal, is on this HMRC list.
We also provide a Cloud-based accounting solution, Advanced Financials. This software has functionality that covers the whole finance team. Not only this, but it also integrates with Business Tax Portal, meaning all accounting and tax-related tasks can be completed in one place via one provider.
We post the latest news about Making Tax Digital as and when it happens. Be sure to follow our Financial Management LinkedIn page to see instant updates.