Making Tax Digital – What does it mean for my business?

The “Making Tax Digital” (MTD) initiative will completely revolutionise the way that businesses complete their taxes. However, with the official roll out being pushed back to 2020 (except for VAT) many are left wondering, what is going on and how will MTD affect them in the future?
We’ve spoken to two of our Business Tax Partners: Sharon Bedford and Alex Nicholson, to find out what Making Tax Digital means for UK business owners.

Why is tax being taken digital?

The most important question is, why have the government decided to make such a major change?

“Primarily for ease,” says Sharon. “Currently, everything is reported historically, but when the system is taken fully digital, reports will be made ‘in time’ which will make the whole process quicker.”

Alex adds that: “A wider agenda behind MTD is that HMRC hope it will help them to identify people who are not playing by the rules; for example those who misrepresent their income or who simply fail to file tax returns but who have reportable income.”

The system should also help to reduce the £8 billion tax gap which is caused by “avoidable errors.”

 

Why was the decision pushed back?

Bringing tax into the digital age appears to have many benefits, so why has the roll out been pushed back?

“Many professional bodies have raised concerns that the original timescale was unrealistic,” Alex tells us. "Thankfully, the government has listened. MTD is a big change and key to its success is to ensure the right data is sent to HMRC. The revised timescale should help to ensure MTD is founded on systems that have been properly tested and proven.”

The pushback also means that smaller businesses will have more time to ‘adjust to the changes’ and the government are able to carry out more rigorous pilot tests. GOV.UK says that: “The first businesses have already started keeping digital records and providing updates to HMRC as part of a live pilot to test and develop the making tax digital service.”

Who will it affect?

Currently, the move will only affect businesses who have an annual VAT turnover of £85,000. However, they won’t be required to use it until at least 2019 and even then it will only be for quarterly VAT reporting. It’ll be in 2020 that businesses and landlords will be moved over to the new digital platform for other taxes.

Smaller businesses, i.e. those who do not meet the VAT threshold, will be able to adopt the new system on a voluntary basis. They will, eventually, have to keep digital records for their other taxes.

The wider initiative of MTD for individuals and its timescale is unaffected by these changes.

What should I be doing?

“For the busy business owner, 2020 is likely to creep up quickly,” says Sharon. “We would strongly recommend that you look at how you collect your financial records well in advance to ensure that you are properly prepared.”
For any further advice on the changes that come with MTD you can contact us by emailing info@jamescowper.co.uk or by filling out the enquiry form on our website.