Making Tax Digital for Small Business – Everything You Need to Know
The HM Revenue & Customs (HMRC) department is making it compulsory for small businesses to file their tax returns online. Learn why it is mandatory to embrace digital tax management and what small businesses need to do before the deadline.
What is Making Tax Digital?
Making Tax Digital (MTD) is an initiative by the HMRC, designed to ensure that the tax system is more efficient, effective and easier for taxpayers.
MTD for business (MTDfb) will be effective from 1 April 2019 with MTD for VAT. According to this programme, all VAT-registered small businesses having annual turnover more than £85K VAT threshold must maintain digital records and submit VAT returns using software that will be compatible with HMRC’s MTD for VAT.
By introducing Making Tax Digital, HMRC envisions transforming the nation’s tax system so that it is:
- More Efficient: The MTD process will be fully automated, seamless and faster for small businesses to save valuable time in managing their tax affairs.
- More Effective: Powered by advanced digital technology, tax recording will be highly accurate, minimising miscalculations, errors and unscrupulous practices.
- Easier: Get your tax right! MTD will make it even simpler for small businesses to record and declare their tax returns online.
How MTD Will Impact My Small Business?
With all the rumours building up regarding MTD, you may be apprehensive about adopting the new technology. However, do not consider MTD as yet another mandatory scheme by the government. It can be a lucrative opportunity to streamline business management and accounting. Recordkeeping and tax filing digitally enable you to check your income, expenses and profits on a regular basis. This aids in improved decision-making.
What to Do to Comply with MTD?
Making it digital is not as scary as it may sound. As a small business, all you need to do is to have MTD-compatible software for record-keeping and filing your tax returns if you are beyond the VAT threshold of £85,000.
While HMRC will make it mandatory to keep all records digitally, you can also maintain paper documents except the transactions related to VAT which should be compulsorily maintained in digital form. To know HMRC’s digital record-keeping requirements, please refer VAT Notice 700/22.
Are There Any Costs Involved?
As a result of MTD coming into effect, small businesses will have to face one-off costs. These may include investing in a new MTD-compliant software solution; cost to upgrade your existing hardware and software; downtime on setting up the new software or reviewing the existing processes; additional costs on training and facilitating the shift to MTD.
What are the Benefits of MTD for My Small Business?
Record-keeping and filing tax return is a complex process and many small businesses find it exceptionally difficult. This leads to avoidable errors that cost the Exchequer over £9 billion a year, according to an estimate by the HMRC. MTD is an initiative to minimize the amount of tax lost to such avoidable mistakes and improve accuracy by making the entire process more efficient, effective and easier.
Keeping records and filing VAT returns not only become simpler and hassle-free for small businesses, but they can also have real-time access to bank feeds that help them regularly monitor their income, expenditures and profit. End result of this will be the business person will be able to see the company’s true position at real time by logging in to cloud accounting portal as the P&L and Balance Sheet will be updated constantly to reflect true position of the business.
To help you with the transition to MTD, seek expert advice of a professional accountant or tax consultant.