Making Tax Digital – What it Could Mean for Your Business
You may have heard of ‘Making Tax Digital’, a plan by the UK Government to make tax easier for sole traders, individuals and businesses to get their taxes right. It should help to keep tax affairs in order too and may spell the end of the annual tax return for millions. But will it deliver what it promises?
Modernising how we pay tax!
Currently, every business can have access to their own personalised digital tax account. This system is constantly being expanded and improved. But HM Revenue and Customs (HMRC) have loftier ambitions.
They want to modernise tax administration, modernising the tax system in Britain to be more effective and efficient, and easier for people to access. Its ambition, it says, is to “become one of the most digitally advanced tax administration in the world”.
Whilst most people agreed the Making Tax Digital for Business was the right way forward, there were concerns raised about both the pace of change and the scale. And this is why the government has announced an amended rolling out of the programme.
Businesses won’t be compelled to use the Making Tax Digital for Business system until April 2019. And only then they will only need to do so to meet VAT obligations.
If your business has a turnover above the VAT threshold, this applies to you. Smaller businesses, including start-ups, won’t need to use the system although you can choose to do so if you want.
Principles of the Maxing Tax Digital Programme
The programme is designed to bring significant benefits to businesses, regardless of their size, sector or industry.
Digital tax information means that at any time, a business and their tax adviser accountant with permission can check the details that HMRC are complete and correct, as well as other important tax information.
It is built on four principles;
#1 Better use of information
The tax system is notorious for being lumpy, slow to respond and for too long, was seen as complicated and inaccessible. When it came to imparting the right information, there were concerns about what information HMRC held on a business and how up to date this was.
Hence, better use of information became a driving force.
#2 Real-time tax
Waiting until the end of the year to find out how much tax was owed is something that any vibrant business would like to avoid. HMRC agree and wants businesses to be able to process and pay tax at intervals throughout the year. This will help to prevent errors and should make over or underpayments being a thing of the past.
#3 Single financial account
By 2020, HMRC will be able to provide a comprehensive financial picture of their accounts to customers. At the moment, there is a jigsaw of financial information and this Making Tax Digital programme will change that.
#4 Digital interaction
The workplace and the world have changed. Digital interaction is commonplace across many industries but tax was slow to catch up. It meant that accessibility was limited but with this programme, customers should be able to contact HMRC, their tax records etc. at a time that suits them
A bold vision
It is a bold vision and one that looks different to how tax has always been seen. Four our customers, whether sole traders or large companies, there will be benefits.
But it may take some getting used to and with the roadmap of changed planned out, there have already been some amendments to when and how the system will be introduced.
At Cortex Accounting, we will keep all our clients updated on the Making Tax Digital, any changes and what it means to them.