Making Tax Digital is a government initiative that aims to simplify the reporting of taxes and changes how small businesses will deal with tax matters. Read on to find out more about what this means for you.
Why make tax digital?
Making Tax Digital is part of the government’s plan to make it getting tax right easier. HMRC want to have one of the most advanced digital tax reporting systems in the world, and Making Tax Digital is transforming tax administration to make more efficient, accurate and effective.
There are certain points all small businesses and landlords must be aware of. Firstly, Making Tax Digital is for everyone and is compulsory. Depending on their circumstances, all businesses will switch over at some point in the near future, if not already. Tax affairs are recorded via an app or accounting software, and information will be digitally conveyed to HMRC every quarter. Making Tax Digital aims to make tax matters less stressful, minimising the time and effort required. Every user has a centralised, up-to-date view of their tax information, entitlement, and liability.
Will it affect me?
The change will affect anyone in the UK who files a tax return or uses an accountant to do so. However, it should not affect pensioners or those who have a secondary income of under £10,000.
What’s in it for me?
There is no doubt that tax errors have cost the exchequer, and thus the country, dearly in the past. For the tax year 2018-2019, figures show that mistakes left the exchequer £8.5 billion short. Digital recordkeeping should improve accuracy, therefore reducing lost revenue. The aim is to simplify tax for business owners too, saving them time and stress, as well as money.
What types of tax does Make Tax Digital apply to?
Making Tax Digital applies to both VAT and Income Tax.
VAT and Making Tax Digital
All VAT-registered businesses must now follow the Making Tax Digital rules. This means keeping digital tax records and using appropriate software to submit VAT returns. This applies to those who have a taxable turnover in excess of the current VAT threshold. Businesses below the VAT threshold may join the Making Tax Digital scheme now, if they wish to. From April 2022, VAT-registered businesses with a turnover below the VAT threshold must also follow Making Tax digital rules.
Income Tax and Making Tax Digital
Landlords and the self-employed who have an income over £10,000 must follow the Making Tax Digital rules from 6th April 2023. Those who would like to can voluntarily use this software now, in place of submitting a Self Assessment tax return. Some businesses and their agents – such as accountants or book-keepers – have taken part in a pilot scheme, and are thus already keeping digital tax records that are sent to HMRC.
How do I get help with Making Tax Digital?
HMRC does provide some support for the Making Tax Digital switchover. Taxpayers, as well as agents, can consult online videos and webinars on Income Tax and VAT. For further advice and assistance, you can ask us here at Adaptive Accountancy, a specialist firm providing tax return services in South Yorkshire.