If you hadn’t heard already, the UK government has recently released an initiative to make preparing, reporting and filing taxes much easier and faster. HMRC’s ambition is to become one of the most digitally-advanced tax administrations in the world. Hopefully, the changes will allow tax administrations to become more effective, efficient and streamlined.
Although this will certainly make sorting out the taxes for your business much easier, there are a few changes that you need to be aware of. Here’s everything you need to know about Making Tax Digital.
Making tax digital for VAT
If you own a VAT-registered business (https://www.gov.uk/government/publications/making-tax-digital/overview-of-making-tax-digital) with a taxable turnover above the VAT threshold (which is £85,000), you are legally required to follow the MTD rules by keeping digital records and using the correct software to submit your VAT returns.
However, if your business is currently below the VAT threshold, you won’t have to follow the Making Tax Digital until or after April 2022.
Making Tax Digital for income tax
If you are a self-employed business or you are a landlord with a property income of over £10,000, you will need to follow the rules for MTD on or after April 2024.
However, you can choose to use this software voluntarily.
How will this affect your business?
This new initiative by the UK government is groundbreaking, but it is also confusing. If you are concerned about how Making Tax Digital will affect your company (large or small), take a look at some of the benefits that Making Tax Digital could have for your company:
- You will get your own personalised digital tax account, meaning that you will be able to easily view all of your tax information, liabilities and entitlements from one place.
- It will increase the accuracy of your tax filing and reduce any errors, so you will only have to pay what you actually owe.
- You won’t have to wait until the end of the tax year to find out what you owe.
There’s a lower chance of unwelcome compliance checks by HMRC.
How much will this cost my business?
Although HMRC will not charge you anything to move onto the digital tax platform, you need to be aware that there may be some hidden costs during the process. It has been estimated that the average cost will be £280 per business. Here are some of the places this cost is likely to come from:
- Time spent training staff on the new system.
- The purchasing/upgrading of any software needed.
- Any additional accountancy/administrative costs.
Getting your business ready for Making Tax Digital
Although it may seem overwhelming, the process of making your taxes digital is quite simple. However, if you are still confused, here are some things you need to do to make the transition from paper to digital easy:
- Ensure you’re using software or an app that can integrate with HMRC’s new system.
- Provide tax data to HMRC quarterly, using digital tools.
- Provide a complete end of the year report to HMRC using digital tools.
Still confused?
Although the process of switching to MTD should not be difficult, it can be confusing for anyone who is not familiar with computers or has taxes that can often be complicated to fill out.
If you are unsure what Making Tax Digital means for you, or you simply want some advice on what you need to do to prepare your business for the change, make sure you speak to SRB Associates (https://www.srbassociates.co.uk/) in Melton Mowbray, who will be able to go over any concerns you may have about your business accounts or taxes.