Four things you need to know about Making Tax Digital
by Startacus Admin
Making Tax Digital (MTD) is set to bring about the biggest change to the UK’s tax system for a generation, with online tax submissions soon to be the only option for the majority of self-employed taxpayers and paper tax returns likely to become a thing of the past. So what does MTD and the new era of digital tax mean for you and your small business? Here are four things you need to know care of our friends over at FreeAgent...
- 1. Hello regular reporting, goodbye stressful January!
The biggest change MTD will bring about is the introduction of a continuous system for reporting your business’s financial information to HMRC. This will replace the current annual Self Assessment tax return, due on 31st January each year.
Although HMRC is keen to use the term ‘real time’ to describe the new process of continuous reporting, the reality is that you’ll be required to submit your financial figures through some form of tax software at least four times a year. The press have been quick to label this process ‘quarterly tax returns’ but this is a little misleading. FreeAgent has produced a guide to clear up the confusion over quarterly tax returns as well as a few other common misconceptions about the initiative.
- 2. MTD could affect you from as early as April 2018
Although MTD was taken out of the Finance Bill in April, the timeline for implementation hasn’t been affected. The pilot scheme is well under way, with tech companies such as FreeAgent working closely with HMRC to test how people will respond to digital record keeping. As it stands, MTD looks set to begin as soon as April 2018 for businesses with annual sales over the VAT threshold of£85,000.
In 2019 MTD will kick in for sole traders with annual sales between the minimum MTD threshold of £10,000 and the VAT threshold.
- 3. There are one or two exemptions
HMRC has already confirmed that charities and “the digitally excluded” will be exempt from MTD. The digitally excluded are defined as those who cannot engage with digital accounting software for reasons of:
- religion
- disability
- age
- remoteness of location
- “any other reason”
The details of any further exemptions from MTD remain unclear and it’s likely that HMRC will look to provide further guidance on this topic before the rollout begins in April 2018.
- 4. Digital tools are the future
If MTD applies to you, you’ll have to use digital tools to keep records of your income and costs. If you use spreadsheets to manage your accounts at the moment and don’t want to switch to accounting software, you’ll also have to make sure that they meet MTD’s technical requirements. This will most likely involve combining your spreadsheets with software in some way.
You may have noticed that you already have access to a digital tax account with HMRC. This will be at the centre of the forthcoming changes. Through your digital tax account you will:
- see a complete picture of your business’s tax affairs
- manage all your tax liabilities in the same place, at the same time
- submit your financial information to HMRC in “as close to real time as possible”, preventing any overdue tax or repayments owed to you from building up
- have clarity about how much tax you owe, avoiding any surprise tax bills at the end of the year
Find out more...
Making Tax Digital will represent a big shift in the way many of the UK’s self-employed people manage their finances and is set to bring about a number of benefits, including:
- always knowing where you stand when it comes to tax
- having access to your business’s tax information online in a single place
- being able to plan and budget more effectively
Download FreeAgent’s free guide to Making Tax Digital to find out more about how the changes will impact you.
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Published on: 20th June 2017
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