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When it comes to running your small business, managing your taxes is the most common cause of stress but it’s all about to change.
The taxation process has been under review by the government for a number of years. The previous system was fairly inefficient so to replace it, the new system is going digital from April 2019. It applies to all businesses and landlords who pay VAT.
Making Tax Digital means that you need to review all of your current software systems. If they are not compatible with the new legislation set by HMRC then you will need to invest in a new system.
So what exactly does Making Tax Digital mean?
The aim of Making Tax Digital is to simplify the whole tax system for individuals and businesses
This new system is based on digital tax records. Intended to be the most advanced digital tax infrastructure in the world. MTD makes it easier for taxpayers to comply with filing and payment requirements.
Even if you already file your VAT return online, you’ll still need to assess and review your system. Making sure that the software package you use is up to date. The key thing here is it must come from a HMRC approved commercial software system.
The four foundations of Making Tax Digital
In its overview of Making Tax Digital, HMRC says that it’s based on four principles. These are:
- Better use of information: If HMRC can get information elsewhere, such as from a bank or another government agency, you won’t need to provide it.
- Real-time tax: Information will be processed in real-time so you will no longer have to wait until the end of the tax year to find out what your tax bill will be.
- A single financial account: Rather than having your tax information strewn across different systems, you’ll have a single centralised view for easier access to information.
- Digital communications with HMRC: If you have even been on hold to HMRC for over an hour just waiting to speak to someone, you’ll be happy to hear that the new Making Tax Digital system will give options to speak with them via webchat and secure messaging. There will also be prompts, tips and advice within the digital system. Your digital tax record keeping software will also be directly linked to HMRC, making it easier to send information.
How Will Making Tax Digital Affect You?
- If you pay VAT, you’ll be required to file your VAT return digitally, from a compatible software system, quarterly from April 2019
- Landlords who make over £10,000 a year in rent will need to file digitally from April 2019
- Additional measures will be rolled out, with corporation tax likely to follow suit in 2020. At the time of writing this was yet to be confirmed by HMRC – dates subject to change.
- Even if you already file your VAT return online, you’ll need to audit your systems and make sure that you are using an up-to-date, commercially recognised software system. One that is approved by HMRC.