The implications of incorporating technology into different aspects of our lives have always been debated. However, it is no secret that technological advancements have proved beneficial in several factors and not only improved the quality of life but made life more comfortable as well.
As such, we are always coming up with new advancements that would allow us to incorporate technology in our lives further, and one of these currently in development is making tax digital.
HMRC intends, for the past few years, to completely replace the current tax system with a digital one; further simplifying life and saving everyone time.
Making Tax Digital
The HMRC Making Tax Digital program, also referred to as MTD, will require businesses to update HMRC digitally and every quarter, rather than the lengthy annual tax return process. However, unlike popular misconception, this will not result in four tax returns per year. Businesses will be required to use cloud-based accounting software which will then be used to update the information quarterly. Companies can still use spreadsheets for maintaining their records, but for updating the data on HMRC Making Tax Digital program, they have to use updated accounting software.
Every year, the tax authorities face tax gaps over 8 Billion pounds due to taxpayer errors that could have easily been avoided. With the Making Tax Digital initiative, firms can see their finances throughout the year and have updated estimates of their year-end tax, all year long. Similarly, the HMRC Making Tax Digital project will mean better accuracy due to the frequent submissions, and it will provide HMRC with essential insight, enabling them to tackle tax evasion and underpayment more efficiently.
Making Tax Digital- VAT
From 2019 onward, firms that met the VAT limit, £85,000, were obligated to transfer to the Making Tax Digital venture. It allowed for a test phase for HMRC Making Tax Digital by utilizing the Making Tax Digital VAT as a test batch. It was also feasible since it meant that small-scale businesses had longer to get the necessary set-up and training before being obligated to shift to the Making Tax Digital venture.
It was applicable for VAT accounting years starting from April 1st, 2019. The Making Tax Digital VAT program is accessible for all VAT registered firms and their respective agents if any. If any registered company has exceeded the limit before April 1st but since then has fallen under it, that company have been obligated to adopt the new method.
The firms failing to meet the VAT limit were allowed the choice of voluntarily signing up for Making Tax Digital Vat program and shifting to digital means.
Preparing for MTD
Many small businesses still do not maintain proper accounting records; however, with the new Making Tax Digital initiative, they will have to shift to appropriate accounting processes.
Additionally, accounting companies will have to update themselves and ensure that their staff is adequately trained and equipped to handle the HMRC Making Tax Digital program, especially the critical Making Tax Digital VAT step of the initiative. They also need to understand that now they may be interacting with smaller firms for four times a year, so they might need to rethink how they offer these services, the charges and overall approach, to remain profitable.
Despite living in a world full of technology, we are surrounded by people falling under the category of “digitally illiterate”. Therefore, pieces of training for the relevant staff and management are a must. Accounting firms might also need to hire additional support staff to help, the firms they are dealing with, understand the different software, reports and digital records, and what they mean.
Despite being new territory for most, the HMRC Making Tax Digital plan is indeed a new age for firms, with promising aspects.