Making Tax Digital
What is Making Tax Digital?
To be enforced from 1st April 2019, Making Tax Digital is part of HMRC’s ambition to become one of the most digitally advanced tax administrations in the world. The scheme is all about giving businesses the opportunity to manage their tax affairs digitally, through an online accounting software solution. With many organisations in the public and private sector taking a step towards transitioning to a paperless office, it only seems pragmatic that HMRC are enforcing Making Tax Digital (MTD). The highlight at the moment is Making Tax Digital for VAT – however there are other aspects such as income tax which will be enforced over the coming years.
From HMRC’s perspective, the information sent by businesses is often inaccurate due to manual intervention. It’s well known that mistakes in recording tax due to human error isn’t uncommon, in fact it is anticipated £9 billion pounds is lost in tax annually due to this (Gov UK). Going digital with taxes not only simplifies and streamlines the tax return process, it also drastically improves the accuracy. From the onset, MTD seems to be a quicker, more modern and accurate method of recording income and expenditure.
Who does Making Tax Digital Apply To?
The scheme applies to any business in the UK which operate above the VAT threshold of £85,000.00 annually. It has been clarified that the only exception to the scheme are organisations who are unable to engage digitally due to circumstances such as inadequate broadband accessibility. As expected, many tax advisers and chartered accountants will be affected by Making Tax Digital, as well as millions of SME’s.
Are businesses ready for Making Tax Digital?
The government announced a written ministerial statement in July 2017 stating that Making Tax Digital would be formally mandated in April 2019 (a year later than previous intentions for April 2018). The delay in the introduction of MTD was welcome, however the year has soon passed, and businesses must now be ready to face the changes MTD has brought. Research conducted by KPMG of 1,000 VAT registered businesses at the start of last month found that just 12% of business were ready for the 1st April deadline!
Making Tax Digital and Brexit
If you keep up to date with politics and the news you will have already realised that this new legislation is due to be enforced at the same time as Britain are due to leave the EU. VAT and Customs duty are likely to be significantly impacted by Brexit; particularly in relation to the VAT treatment of transactions between the UK and EU. Businesses will need to both understand the tax-technical changes to the rules and ensure that their accounting systems and processes deal with changes to such transactions correctly via the new reporting requirements of MTD.
Streamlined Processes & Improved Accuracy
Once in force, Making Tax Digital certainly will reap benefits for businesses in terms of instant access to records and implementing a central system. For example, businesses will be able to access tax information in one single place allowing for easy analysis to check mistakes and review to plan budgets more effectively. Also, working with more accurate reports will allow management to analyse on-going business performance and trends.
Less Paper & Improved Productivity
Making Tax Digital also removes the need to complete self-assessment tax return forms each year, although taxpayers will still need to make end of year adjustments to their digital tax accounts as well as quarterly returns. The scheme also encourages businesses to keep digital copies of their documentation in a central location, making the tax submission process quicker and easier for employees.
What’s my solution?
For businesses which process large quantities of accounts documentation, or simply don’t have the resources to digitise their records, Storetec offer quality document scanning services to suit your requirements. Setting up a PO box for incoming mail or arranging a weekly/monthly/quarterly collection, you can rely on Storetec to digitise and index your records for submission to HRMC. We can even store your digitised documents on our cloud-based document management system, FreeDocs. Acting as a central system to keep your records secure, FreeDocs also has vast access and security features such as data encryption, restricted access controls and audit logs.
In summary, Making Tax Digital gives businesses an opportunity to get control of their finances, to simplify and modernise their systems and give them valuable information, at the right time. Although Making Tax Digital may first appear an admin burden for smaller businesses, the strategy does create many long-term benefits and fundamentally ensures that businesses are paying the correct tax.