Making Tax Digital (MTD) is a government initiative aimed to make it easier for you to manage and pay your taxes.
HM Revenue & Customs do not want to turn a nation of small businesses people into accountants but the technology available is such that business people can capture the data at source to facilitate regular updates.
This is the thought process behind the introduction of MTD.
The current systems are in need of updating, re-organisation and modernisation. Most people now engage in digital media and therefore it seemed obvious to introduce digitisation of the accounting data now.
The root cause of the £8billion tax gap lies with avoidable errors and inefficient record keeping.
HM Revenue & Customs feel that with solutions, such as cloud accounting, together with all the apps it offers, data capture on a regular basis will not be problematic. For example; imagine the “man in the van” going about his business collecting receipts for fuel, food etc. and stuffing them in his glove compartment only to summarise them at a much later time, or more likely to hand them to his accountants. This is soon to be replaced by taking photos of the receipts on his smartphone and feeding the data directly into the accounting software.
Therefore embracing cloud accounting early, and with plenty of practice, will ensure that you are fully compliant by the time your business needs to report for Making Tax Digital.
What does it actually mean?
In short to keep digital records of all the income and expenditure and submit these electronically to HMRC.
The timetable for MTD is as follows:
- 1 April 2018 – Landlords and self-employed over the VAT Threshold
- 1 April 2019 – Landlords and self-employed not included above (unless covered by exemption below) plus all entities who are filing VAT returns
- 1 April 2020 – Limited company’s including corporation tax
There are exemptions from MTD and they are:
- All self-employed and landlords with a turnover of less than £10,000
- Those in employment and with a secondary income of less than £10,000
- Charities and Community Amateur Sports Clubs
- Those who are digitally exempt
The mechanics will be to submit at least quarterly updates, with a fifth end of period statement and then of course the tax return that you do now referred to as the Final Declaration.