Amanda Swales, Director of GoSimple Software, takes a closer look at Making Tax Digital and the key points that small and micro businesses need to take note of.
The tax system is on the cusp of an overhaul – Making Tax Digital (MTD) is a government-led initiative aiming to simplify tax for businesses big and small. For the latter, there are sweeping implications as to how business owners manage and report their earnings to HMRC.
New technology is already being harnessed for tax reclamation. HMRC claims to have detected 17,000 fraudulent or incorrect Self Assessments in 2016 alone, totalling £96 million. That figure may have risen this year, paving more ground for a fully digitised alternative.
There are many elements to consider when looking at MTD and what it means for small and micro businesses.
MTD was announced, initially, under ex-Chancellor George Osbourne’s plan for a simplified tax process. The aim was – and still is – to eliminate paper returns for anyone taking non-PAYE income. However, there have been numerous delays and changes to the initiative since it was first announced in the 2015 Budget.
Instead of sending forms, every year, by post, taxpayers will be able to update their details online, reducing the chance of errors in the process. Eventually, the deadlines will also shift from twice-a-year instalments to quarterly payments.
As it stands, Making Tax Digital will be introduced as follows:
As many small and micro businesses earn below the VAT threshold, the current rollout of MTD is designed to give these ventures more time to prepare for the introduction of a digital tax system. And since the number of VAT-registered business has exceeded 2.6 million in 2017, there will be a huge share of trial subjects that will work out any kinks before MTD is opened to the wider professional community.
While the government has adjusted the MTD schedule to facilitate a gradual switchover for small and micro businesses, there are benefits to going digital sooner rather than later:
There’s a lot more to learn on MTD, which can be found on the HMRC website. Trials are scheduled for Spring 2018, giving micro and small businesses a chance to get to grips with the new tax system. In the meantime, you may explore complementary aids to your finances, such as bookkeeping and expense tracking applications, to bring your business into the digital future.
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