Making Tax Digital – or MTD as it’s often called – is the UK’s biggest tax shake-up in a generation. If you file a tax return either for yourself or your business you’ll soon be required to do it in an MTD-compliant way. That’s because the UK government is moving HMRC to a fully digital based tax system.
The monumental change which will see the HMRC completely transition to digital tax by 2020, is actually long overdue and will make it easier and quicker to manage taxes without having to fill in so many forms.
We can all look forward to a tax system which is frequently updated over the course of the year, and allows you to keep tabs on things so you know how much you have to pay in advance. Sounds good, right? But are you ready for the change?
What You Need to Do for Digital Tax?
From April 2018, many businesses and self-employed individuals will need to update HMRC quarterly using the new digital system. While this means you no longer have to wait until the end of the tax year to find out how much you owe, it also entails new responsibilities. You will have access to a personal online account which you are required to update; it will prompt you when action needs to be taken and includes support via webchat and messaging.
If your business does not already make use of an online accounting solution like QuickBooks, then you should start using one as soon as possible.
The new digital system will be implemented in stages from April 2018 to 2020, giving your business time to adapt. The transition will be easier for early adopters of online accounting software like QuickBooks and associated apps, which help you to keep digital records of your income and expenditure. HMRC will also develop free apps and software products for these purposes, but it is wiser to rely on a tried and trusted commercial software package such as QuickBooks.
By using QuickBooks you become accustomed to the routine of frequently entering tax data into the software, where it is compiled and organised for you to submit. QuickBooks makes this process simple by prompting you to add any missing data and by compiling it in such a way that you or your accountant can easily submit it to HMRC’s digital tax system.
HMRC will begin testing the digital reporting feature with small businesses before the end of the year. They also intend to authorise certain accountants to manage their clients’ digital tax accounts this year. By early next year you will be able to report secondary sources of income through your digital tax account and by the end of next summer you’ll be able to update both income tax and National Insurance contributions via your online accounting software. This incremental process of feature deployment will continue over the next four years, until the digital tax system completely replaces the current one.
Have a look at these Myth busters pulled together by HMRC https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/494821/Making_Tax_Digital_-_myth-buster.PDF