If you have seen these three letters and wonder “What is MTD?” or “How will MTD affect me?”, read this short blog to learn everything you need to know about the government’s plan to make tax digital.
What does MTD mean?
MTD stands for Making Tax Digital and is a government plan to place the UK among the most digitally advanced tax administrations in the world. The government’s ultimate aim is to digitise nearly all of the submissions, exchanges and communication between taxpayers and its tax collection agency – HMRC. This will make it easier for individuals, and businesses to stay on top of their tax, and provide the government with real time data on potential tax collection. Submitting paper records will be replaced with digital accounts which are regularly updated and processed online.
Why are people talking about MTD right now?
The MTD scheme was first announced back in December 2015 as part of Personal and Business Tax reform but met some backlash due the pace and scale of what the government was asking small businesses to do. The main criticism being that while MTD is a step in the right direction, it was phased in too quickly and on too large a scale for businesses to implement it successfully. So in July this year, ministers announced a new timetable. Most small or medium-sized businesses will not be required to keep digital records or update HMRC quarterly until 2020. Since we are on the cusp of 2018, this gives small traders and businesses 2 years to prepare for the change.
What does MTD mean for me?
Simply, that you will require a secure, connected, digital accounting system – if you don’t already have one. At some point in the next two years, you will need to start keeping digital records and you will need to find a way of providing these records to HMRC electronically. For now, we can recommend Sage as the best way of making all of your accounts digital and we are currently offering licenses for a simple system called Sage Business Cloud Accounting Start to all of our clients (old and new!) for free.
For businesses with a turnover over £85,000
Businesses with a turnover above the current VAT threshold of £85,000 will have to keep digital records (only for VAT purposes) from 2019 onwards. From 2020 onwards, you will be required to keep digital records and update HMRC quarterly.
For the smallest business
Business with a turnover of less than £85,000 will have the option to use HMRC digital services but will not be required to until 2020.
Why is the Government going digital?
The Government believes that too many businesses struggle with getting their tax right, and ultimately this can result in lost tax revenue. There is also the cost of monitoring, review and investigation when an apparent mistake appears. Easily avoidable taxpayer mistakes cost HMRC over £8 billion pounds a year, and in 2014/2015 over £3.5 billion of revenue was lost due to the mistakes in VAT returns alone.
Making Tax Digital could essentially get rid of the annual tax return as it exists today. Trading information, self assessed tax due and claims made by businesses will initially be made quarterly, but may eventually be required in near real-time. It is in the government’s interest to know (more frequently than once a year) how business is performing and what its tax receipts are likely to be.
How can I prepare for MTD?
The best way to prepare for MTD is to adopt some appropriate accounting software in your business and learn how to use it. In the near future keeping only physical records or even basic non-connected electronic documents (Excel!) will not be a viable option as MTD becomes compulsory. Moving away from ‘shoebox accounting’ is difficult but worth it. Cloud based accounting software is surprisingly easy to use, and in the long run will make processing accounts for your business much easier. New technologies are being developed all the time, such as ‘Bank Feeds’ which allows the software to connect to your online bank, and has been estimated to reduce data entry by 80%.
There are other benefits not based on government imposition. Issue invoices on the go using smartphone apps, generate profit and loss accounts or debtor reports at the touch of a button, and use these to manage your business more efficiently and effectively. If you are ready to embrace digital accounting, we can provide you with both the software and the training to get you ready for MTD.
I am worried I won’t be ready for MTD, can you help me?
Don’t worry, we are here to help you prepare for the digital age and we will hold your hand every step of the way. While you are not required to make the change right now, we suggest you do – and if you are ready to take the steps described above, we are here to help. Call us or send us an email to set up a meeting to discuss how you can free yourself from admin with Sage Business Cloud Accounting and be prepared for Making Tax Digital. Then when it becomes compulsory in a year or so, you can relax!
To learn more about our accountancy service and training for sole traders and small businesses in Glasgow, call 0141 334 1318 or email us at email@example.com
HMRC Policy Paper. Overview of Making Tax Digital. (2017). Available at: https://www.gov.uk/government/publications/making-tax-digital/overview-of-making-tax-digital
Keir Thomas-Bryant, Sage. What does Making Tax Digital mean for businesses? (2017). Available at: http://www.sage.co.uk/business-advice/legislation/making-tax-digital
Charity Tax Group. Making Tax Digital Reporting Requirements. (2017). Available at: https://www.charitytaxgroup.org.uk/news-post/2017/making-tax-digital-charities-exempt/