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Does the thought of ‘Making Tax Digital’ give you nightmares? How on earth does it work and how will you have the time to manage it?
There’s no escaping it. Making Tax Digital is part of the Government’s Tax Administration Strategy and is a requirement, not an option. It’s here to stay and its’ not going away!
Making Tax Digital, or MTD for short, has been introduced by HMRC to simplify the tax system for everyone. The Government believes that, by digitising the process it will transform the way we manage our taxes. Through digitisation, the process will become more efficient, more effective and easier to get right – avoiding those loathsome tax errors that can deliver such pain.
Ultimately the aim is to include all taxpayers in the digital process. It’s being delivered in steps to ensure there is less room for error or overloading the system. Businesses registered for VAT are the first to be involved, whilst non-VAT registered businesses will have to start filing their Income Tax returns over the next few years.
In our opinion it’s not a negative. There are advantages to Making Tax Digital. Once you’ve got your processes in place. Benefits include:-
So, with that in mind, here are some key facts to be aware of and to bear in mind:
All businesses registered for VAT, with a taxable turnover of £85,000 and above, have been required to sign up to MTD for VAT since 2019. That means keeping digital records and using MTD-compatible software to submit returns.
There are a multitude of software options to choose from. The simplest way of finding out if a platform is compatible with MTD for VAT is to check on the government website. We would also recommend that you speak to your accountant to ascertain if they are a partner for any of the platforms as this will make it easier for exchanging information.
The team here at Dominic Hill use Xero, Quick Books and FreeAgent on a daily basis and can provide any advice to support you on your journey.
The government is constantly reviewing the plans and release dates for MTD. If you are self-employed, or a landlord, you will need to provide digital records for your Income Tax in the not-too-distant future. The best place to check is the HMRC website found here.
Making Tax Digital for Corporation Tax is on the horizon, but HMRC have yet to set a date for its introduction.
Making Tax Digital for Income Tax is currently in the pilot test stage, with many businesses and agents volunteering to be part of test run. There may still be places available for individuals or businesses to sign up and volunteer to be part of the pilot. You can check here.
You won’t automatically be signed up to MTD for VAT. This is because HMRC needs to verify your information and migrate your record to their MTD system. It can take up to 72 hours to receive confirmation from them.
You’ll need to sign up your business with HMRC using your existing Government Gateway Login and VAT Number. Once you’ve authorised your chosen software to connect with HMRC, you’ll be able to submit MTD VAT Returns directly from your software account.
Your accountant can submit on your behalf, but you have to authorise them to do so. If you want Without the authorisation, they will not be able to access or submit your VAT Returns. Talk to your accountant and they can show you how easy it is.
HMRC will apply the same penalties as they currently impose for failure to keep or preserve records for VAT purposes. These can be found on the gov.uk website and can be as high as 100% of tax under-stated if HMRC deems the mistake to be careless or deliberate.
Above all, remember there is help at hand. The team at Dominic Hill can assist in tailoring a solution specifically to suit your requirements. We can provide you with as much or as little as you need, whether it’s just software selection, software training or full outsourcing.
At present, we are on hold between 45-60 minutes for every phone call to HMRC and this is likely to get worse in the next few weeks.
1. The VAT registration threshold has been raised from £85,000 to £90,000. This means for businesses who’s annual turnover was starting to get near that limit, there is a little bit more breathing space. This wasn’t quite the VAT rate reduction we were hoping for but it’s a move in the right direction
With the increase in corporation tax rates in 2023, we are now having to consider each client individually to see whether the combination of corporation tax and personal tax on dividends is still the most tax efficient way to extract money from a business.