Making Tax Digital: What you need to know

Making Tax Digital (MTD) is a key element in the government’s plans to make it easier in the long run for businesses and individuals to get their tax right and to keep on top of their affairs.

The fundamental changes in the transforming tax administration are; a more effective and more efficient system and it will be easier for taxpayers to get their tax right. Tax advisors North Wales will be able to help get you on track for the changes happening in April 2019.

It is the ambition of HMRC’s to become one of the most digitally advanced tax administrations in the world. The goal is for a fully digitised tax system by 2020, whilst also reducing HMRC’s overheads for managing tax affairs. The changes being implemented apply to a wide range of taxpayers, including most businesses, self-employed professionals and even landlords.

This new and shiny system will require the majority of UK business owners to use compatible software to manage their digital records. It important to note that HMRC will not be developing their own in-house software for this, so businesses will have to rely on software solutions that are currently available on the market. There is obviously going to be an initial cost to this; this could include outlays on a new or upgraded hardware and software.

Making Tax Digital for VAT

As of April 1st 2019 – VAT-registered businesses with taxable turnover above the VAT threshold (£85,000) are required to use the MTD service to keep their records digitally and to use the software to submit their VAT returns. The exceptions to this are a small minority of VAT-registered businesses with more complex requirements.

Timeline: Making Tax Digital for VAT
Date Activity
April 2019 Making Tax Digital is mandated for all customers (except those that have been deferred).
October 2019 Making Tax Digital is mandated for all customers that have been deferred. The 6-month deferrals applies to customers that have fallen into one of the following categories: trusts, ‘not for profit’, organisations that are not set up as a company, VAT divisions, VAT groups, local authorities, public corporations, traders based overseas, public sector entities required to provide additional information on their VAT return (Government departments, NHS Trusts) and those required to make payments on account and annual accounting scheme users.

Income Tax

Some UK businesses and agents already keep digital records and provide their updates to HMRC as part of a live pilot to test and develop the MTD service for Income Tax. If you are a self-employed business or a landlord, you can voluntarily use the software to keep your business records digitally, and to send through Income Tax updates to HMRC. This eliminates the need to file a Self-Assessment tax return.

The new system has been designed in order to improve the accuracy of tax records, which will in turn save the Exchequer over £9 billion per year in avoidable mistakes made with the old system. Along with the help provided with built in software, the information is being directly sent to HMRC from the digital records. This will avoid transposition errors, which will in turn reduce the amount of tax lost to these avoidable errors. Consultant your accountant for personal advice.