Making Tax Digital
What is Making Tax Digital?
In order to make the tax system more efficient, more effective and simpler, the UK government has introduced a digitalized system for collection of taxes. Making Tax Digital is an initiative introduced by the HM Revenue and Customs (HMRC) to replace the manual filing of returns with digital filing of returns. MTD was introduced on 1st April 2019 by HMRC throughout the UK including Wimbledon. All VAT-registered local businesses having a taxable turnover exceeding the current VAT threshold of £85,000 are required to use MTD for keeping records and filing of VAT returns.
For the time being till April 2020 at least, VAT is the only tax being digitalized for individuals as well as businesses. In April 2020, income tax and corporate tax are going to join the MTD club as well.
How it works?
MTD will let you summarize your taxes, income and expenditure four times a year for the HMRC. You will need an accounting software like Intuit QuickBooks, Sage or Xero to link with your tax account digitally. You can also link your tax account with a spreadsheet that has all your records stored on it. This requires special bridging software which we can advise clients on.
What you need to do:
If you are a VAT-registered individual or business in Wimbledon and unsure of what’s next for you, this article is for you. We will assist you in getting up to speed on Making Tax Digital.
- The first thing you need to do is make your tax account from which you will be preparing your quarterly tax returns. Your electronic account will include the name of your business, address of registered office, VAT registration number and the VAT accounting schemes you use. You also need to update the software with all transaction data available like the time of supply, net value of supply, VAT charged (0%, 5%, 20%) as well as accounts payable and accounts receivable listing. There is no requirement of digitally storing each invoice or credit note individually; however, this does not in any way imply that all the records must be discarded.
- Secondly, you must link your electronic tax account to the digital records on your software. This will become mandatory for every VAT-registered individual and business from April 2020 and onwards.
- Lastly, you will have to file quarterly VAT-returns. Before MTD was implemented, businesses and individuals used to manually type in all their income and expenditure data on the online portal provided by HMRC. The payment as well as the filing of return was both annual and manual. Now, however, you can virtually file your return as well as make the payment four times a year.
If you’re an individual or a local business and fall under any of the following categories, you will be exempt from the MTD system:
- Those who can’t use digital tools due to religion, age, remoteness, disability or any other reason
- Charities excluding trading subsidiaries of charities
- Unincorporated business or landlord having annual sales below £10,000.
We have many MTD experts here at Park Accounts who can help you and your business get up to speed. So if you have any queries get in touch and we’ll be pleased to assist any way we can.