There is no doubt that the “Making Tax Digital” program is ambiguous. According to the UK government, "the HMRC's ambition is to become one of the world's most advanced digital tax administrations." So what makes tax digital and what are the advantages?`
What is Making Tax Digital?
Making Tax Digital (MTD) is the HMRC programme to switch from a reliance on traditional paper-based systems and forms for tax administration, to a complete digital tax platform. MTD has already been rolled out for UK VAT, and will eventually be used for other taxes like income tax, company tax, and self-employment tax.
MTD for VAT went live in April 2019 only for businesses over the £85,000 VAT threshold. According to the HMRC, on March 9, 2020, more than 1.4 million businesses had already joined the new digital VAT service for more than four million VAT returns were successfully submitted.
MTD only changes the way you file taxes, not the tax rules.
MTD compatible record-keeping software and tools can automatically prepare tax returns and send them directly to HMRC. This avoids possible errors and the tedious process of manually entering VAT returns.
What are the benefits of Making Tax Digital?
There are several benefits of HMRC’s MTD, such as:
- Improving business productivity, going digital could save one day a week in business administration
- Reduce paperwork
- Facilitate the filing of tax returns and reduce errors
- Improving visibility of tax liabilities
- Use mobile devices to see tax data
What is the cost of implementing MDT in your business?
As we said, cost savings can be achieved through MDT due to the reduced time required to file taxes. However, there are additional costs that MDT may incur for businesses, including the cost of compatible software for record keeping and data transfer.
Many cloud-based accounting software systems, such as Quickbooks, Xero, Sage, and FreeAgent, charge monthly fees, depending on the number of users required. They vary between £ 30 and £ 50 per month.
In 2021, HMRC is expected to introduce MDT for income tax and corporate tax. It can also be deployed in all companies registered for VAT. However, this could be delayed due to the Coronavirus.