Making Tax Digital - What does this really mean?
Deadlines are funny concepts. You may know about them well in advance, but it’s extraordinary how often they can still creep up on you and catch you off your guard. The deadline for the “Making Tax Digital” project should have been April 2018 for all companies regardless of size, but now it will only apply to unincorporated companies above the VAT threshold.
Unincorporated companies with a turnover of £10K or more but under the VAT threshold have until April 2019 and incorporated companies until April 2020. While these deadlines may, potentially, move forward due to the general election (or indeed be abandoned altogether if the Conservatives lose), it’s probably best to work on the assumption that this is now the final timetable.
Digital tax means tax which is simple, current and visible
The argument behind the “Making Tax Digital” project is that it will bring a number of benefits with minimal to no cost and inconvenience. It will:
The MTD project will allow HMRC to receive feeds from various sources, such as banks, thereby removing the need for individuals to need to provide information which has already been made available to the tax authorities by other means. By the same token, the new digital tax accounts will provide a "one-stop shop" for businesses to see their entire tax situation in one place.
The fact that HMRC will receive inputs more frequently means that it can calculate tax on a basis which is nearer to real-time and hence give businesses a more accurate idea of what they are actually due to pay.
Digital tax will work alongside the increased use of digital communication; hence, for example, customers can avoid having to navigate HMRC’s telephone menu system, by using webchat and secure messaging.
The cost to businesses
While the MTD project may indeed deliver benefits, those benefits do come at a price. The headline price is the fact that businesses are going to be required to provide HMRC with "updates" at least once a quarter. At the current time, there is still a lack of clarity about what "updates" is actually going to mean in real terms. What is known is that the MTD project will require companies to submit these updates through an HMRC-compliant digital system, in other words, an online accounting package.
It’s probably a safe assumption that the major accounting packages will make sure that they are compliant with HMRC requirements long before the deadline and there are indications that there will be a free alternative for businesses who need or want it. It does, however, mean, that businesses which still operate in a more “analogue” manner, for example by doing their accounts on paper or in spreadsheets, are going to have to adapt quickly to the new reality.
Making a virtue out of necessity
While some businesses at least may resent being forced to change practices which work perfectly well for them to accommodate HMRC, a more positive approach is to see the MTD project as an opportunity to look at existing processes and see how they could be improved. For better or for worse, all signs point to the fact that digital is the way of the future and that hence companies need to get to grips with making it work for them.
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About Javeed Baig
Javeed Baig is a senior accountant and managing director of Gower Accountancy, a Leicester based accountants who provide their services to a range of sectors from doctors and dentists to the motor trade and website developers. They have built a great reputation on their high quality personal and professional service.