Making Tax Digital: Everything You Need to Know

MTD or Making Tax Digital is an initiative of the British Government to digitalize tax filing and accounting for their people. The idea behind the innovation was to help individuals as well as businesses to streamline tax filing, on a single platform.

When Will It Come into Play?

Making Tax Digital is expected to come into practice on April 1, 2019. However, this deadline is only for businesses that have crossed the VAT threshold. Businesses beyond VAT will be included under MTD by April 2020.

Who Is Included Under MTD?

Making Tax Digital will include a wide group of people, ranging from individual taxpayers, landlords, self-employed individuals and all businesses, except a few. Although, by April 2019, it will only be mandatory for the VAT registered businesses with a turnover greater than £85,000.

Why Was the Change Initiated?

The HMRC (Her Majesty’s Revenue and Customs) claims that every year billions of pounds are lost to errors and miscalculations during tax filing. To cap these losses, the HMRC proposed the idea of Making Tax Digital administer taxes in a simpler and effective manner, avoiding the possible errors.

In short, Making Taxes Digital has been employed to make tax filing:

• Accurate

Making Tax Digital desires to shape the tax process in such a way that there remains little chance of miscalculations and errors. A tight control of fraudulent activities will also be practiced.

• Simpler

The HMRC will introduce tax software that allows small businesses to quickly file their taxes online, with ease and efficiency.

• Faster

With efficient software available online, the tax filing for business owners and accountants will be more automated and time efficient.

How is Will Making Tax Digital Benefit People?

• Everything At One Place

Users with MTD will create a single financial account that will include every detail of their liabilities and claims, all at one place.

• Digital Interaction

MTD has replaced the telephonic conversations with online chats and emails. Users will no longer have to wait on call for several minutes to get their queries answered.

• Up-to-date Tax Information At Every Time of The Year

Making Tax Digital by HMRC will require its users to update their tax statements at least four times a year. Although it is not a mandate to do it every three months, the information will need to be available on their digital accounts so it can be viewed by HMRC when required. Thus, a comprehensive tax picture for both the user and the government.

• Fewer Efforts, More Time At Hand

One digital account will hold every critical information, tax payments will be done on the same platform, documents and spreadsheets will stay on the same account, using a third party software.

With this, tax filing and record keeping will be less of an effort for the users, saving them more time to be used on more important areas.

• Tax Planning Better Than Before

By maintaining records digitally, users will develop a habit of updating their taxes regularly. This gives the taxpayers a clearer picture of their tax situation. Using this information, they can manage their taxes better. Payments this way can be budgeted to make financial management easier and effective.

Are There Any Risks Associated With Making Tax Digital?

The only problem with MTD is that a large number of businesses are used to the traditional method of tax filing. These businesses may be apprehensive to make the transition from the current practice to the digital platform. Although it may be scary to use entirely new software knowing that the HMRC is involved in the process, the benefits out-number the risks.

The best thing to do is to prepare you for the upcoming changes to make the best of what the government has in mind.