If I were to tell you that the annual tax return as we know it could be obsolete by 2020, you may not believe me! Yet this is the mission set by HMRC, whose vision of a “transformed tax system and the end of the tax return by 2020” begins with Making Tax Digital (MTD).
The fundamental reasoning behind MTD is simple: the yearly tax return is a recognised inconvenience for many, not least HMRC themselves.
Basically, a great deal of businesses will leave their tax returns to the very last minute, which causes a backlog of work for both the businesses involved, their accountants and of course, HMRC.
Additionally, HMRC has estimated that an overwhelming £8 billion of lost revenue is directly linked with mistakes made on annual tax returns.
MTD therefore intends to reduce errors and help businesses keep on top of their finances – whilst at the same time revolutionising the way we calculate and collect tax.
What does MTD entail?
Under MTD, which comes into full effect from April 2019 (April 2018 for businesses above the VAT threshold), your annual tax return will be replaced by quarterly digital submissions. This means there will be no more waiting until the end of a long year to find out how much tax is owed by your business.
Whilst on the surface quarterly submissions may seem like four times the work, in reality not only will your tax information be more accurate, but a digital system means we can all finally do away with those dusty old books, outdated spreadsheets and hastily-scribbled pieces of paper!
Under MTD, documents and relevant information will be stored against your digital tax account, in an electronic ‘filing cabinet’ you will be able to access whenever you need to. So MTD should put an end to searching for that important document you knew you saw somewhere around…
Preparing for MTD
It’s easy to feel overwhelmed by the introduction of MTD, particularly if you are a sole trader, or in charge of a small business that is not VAT-registered. However, preparing for the new system is far simpler than you may first think.
Use recommended software
Switching your accounting to a digital system sounds onerous, yet if you think about it, you probably already own a laptop and/or a smartphone. This means the basic equipment is already at your disposal.
Our initial recommendation is that, if you haven’t already, you should start thinking about implementing software to assist with invoicing and general accounting. For example, here at STB Accounts and Bookkeeping we use QuickBooks, which we would highly recommend for its general ease of use.
MTD is a nationwide project that is still in its early stages, so it’s important to keep yourself updated with any developments and take sound advice, so that you can be sure your business is doing everything right, and in good time.
This blog will chart MTD-related developments and keep you regularly informed about updates. Why not bookmark it, so you can stay on top of any amendments?
In the meantime, HMRC have pledged to make transitioning to MTD as easy as possible for businesses – starting with simpler online communications, heralding an end to waiting on a busy phone line.
How STB can help your business
We’re part of the digital tax revolution here at STB! Our software is already compliant with MTD standards, while our in-house expertise helps us provide relevant and up-to-date information to our clients – meaning they won’t be caught out once MTD is in force.
If you have any questions about Making Tax Digital, our friendly team at STB Accounts and Bookkeeping are the perfect people to ask. Simply get in contact.