The UK Government has introduced Making Tax Digital (MTD) in an effort to help streamline the taxation process. Current statistics from 2018/2019 report that tax evasion and reporting errors cost the Exchequer £8.5 billion in that year alone.
The introduction of MTD hopes to reduce this. Like with anything new, there are confusions, misunderstandings and an adjustment phase. Here’s a look at all you need to know about Making Tax Digital.
What is Making Tax Digital?
Most businesses, and many individuals, now keep digital records of their financial transactions. These records reduce time and errors and are easily accessible. The thought process behind Making Tax Digital is to tap into this data to report VAT or income tax to HMRC.
With 8 in 10 businesses already using software to keep records, it’s not going to be a considerable burden to use this data for taxation purposes.
Is it compulsory?
The short answer is yes. However, it is being phased in, and not everyone needs to lodge this way at first. The initial group required to use MTD were businesses with turnover above the VAT threshold (currently £85,000). The requirement here is that MTD filing was to be done for the period starting on or after 1 April 2019. This group had already been filing online since 2011, so it wasn’t a great leap to lodge via making tax digital software.
The second deadline for businesses under the VAT threshold to join MTD was 9 March 2020, with many joining voluntarily before that date. However, they don’t need to lodge under this program until after April 2022. The final group – self-employed businesses and landlords with an annual income of over £10,000 – have until April of the following year. Allowances are being made for those who might miss their first lodgement due to technical or other issues.
Where to get help
It’s best not to go it alone with something so crucial as lodging your VAT or income tax correctly. There is a lot of information online already about MTD, most of it accurate, but how can you be sure? You’re best off going straight to the source at HMRC or gov.uk for the most up-to-date details.
Your making tax digital software is also very important. Sure there are free ones out there, but you’d be better off getting one that has loads of support, to ensure you get your details completely correct before lodging.
MTD is a new initiative, and there are bound to be initial teething problems and issues, but after your first one, it’ll be smooth sailing, and you’ll wish it had been this easy forever.