Making Tax Digital arrives this year and sees drastic changes to how VAT registered businesses process their tax returns and store data on their taxes. Approximately 1 million commercial organisations in the UK will be affected by Making Tax Digital, so it’s important to understand the scheme and what to expect from it.
What is Making Tax Digital?
Making Tax Digital (MTD) is a UK government initiative that requires businesses to submit their tax returns digitally. Coming into effect on 1 April 2019, the initiative is part of a wider scheme by HRMC to modernise the UK tax administration, resulting in more effective, efficient, and easier tax processing systems.
However, HRMC plans to stagger the initiative, which is Making Tax Digital only applies to VAT-registered businesses that meet the current threshold. This is set to a taxable turnover of £85,000, so any business that meets the threshold needs to submit VAT tax returns digitally and keep digital records.
Because the entire process is done digitally, businesses must use compatible Making Tax Digital software. There are currently over 100 vendors that have created MTD compatible software, which the UK government has listed on the official HRMC website.
Does Making Tax Digital Cover All Tax?
2019 marks the beginning of Making Tax Digital. It starts with VAT tax this year, but the following years will see income and corporation tax added to the initiative, possibly as early as 2020.
Therefore, even if a business doesn’t meet the current VAT threshold for MTD, they will eventually have the same requirements for income and corporation tax, so it helps to start researching MTD software options now.
What is a Digital Tax Account?
Making Tax Digital is being introduced to greatly improve and streamline tax processes in the UK. Digital taxes accounts are a core component of this, providing a business (and eventually individuals) with a single account where all their tax information is located.
Think of it like an online banking account. All data regarding taxes are found in a digital tax account and can be viewed in real time. Anything can be updated at a moments noticed, while additional services, payment options, and tax calculations can be made on this account.
Choosing Making Tax Digital Software
If you currently meet the VAT threshold for MTD then you need to ensure you’re using compatible software when filing tax returns. As there are over 100 vendors providing the software it should be easy enough to find one that meets your requirements.
Because each organisation has different needs it’s important to think about these requirements when selecting software. For example, a business with little digital software in place may require software that integrates spreadsheets, which is achieved through a feature called spreadsheet bridging.
Also, remember to look ahead, as MTD is just getting started so it may be a good idea to buy software that is feature-rich for future tax return processes.
For example, accountancy businesses will benefit from a comprehensive software solution that meets future requirements for MTD, such as features relating to corporation and income tax returns.
Companies using a range of IT systems may need software that is easier to integrate with the current systems, ensuring a smooth transition period when MTD arrives.
So, always be sure to look at the various requirements of your organisation when choosing software.