Mandatory compliance with Making Tax Digital (MTD) rules is here, and whilst many will already be fully compliant with the impending legislation, there’s no harm in double checking that everything is in order, and there is no cause for doubt in ensuring tax reporting procedures are fully up to scratch, and businesses are sage from any impending fines.
Essentially, HMRC’s MTD measures is a new legislation which is compulsory for VAT-registered businesses with taxable turnover under £85,000. As of April 1st, Businesses are legally required to be compliant with these measures.
MTD has been put in place to close the government’s ‘tax gap’ – according to the HMRC, the total tax underpaid or missing was estimated to be £35bn in 2021, which is 5.3% of total tax liabilities.
But, MTD isn’t just about retrieving more money for the government. In theory, it will completely modernise tax reporting and aid businesses in the long term, and make HMRC the most technologically advanced tax administration in the world. Being compliant with MTD is as much about avoiding a hefty fine as it is about streamlining reporting processes for the benefit of more efficient business processes.
In a recent independent study of over 2,000 businesses reported by the UK Government, 69% reported experiencing at least one benefit from Making Tax Digital. These included preparing and submitting returns faster and increased confidence that they were getting tax right. Sixty-seven percent of businesses also felt Making Tax Digital had reduced the potential for mistakes in at least one aspect of the record keeping, preparing and submitting returns process.
As a part of this initiative, all businesses will have access to a digital tax account. From here, they will submit tax information to HMRC on a quarterly basis.
But, some of the practical steps businesses will need to follow to ensure compliance with MTD measures, include the following:
Finding an app
Reporting tax under MTD measures requires technology, and finding an app that’s intuitive and easy to use can make online tax filing manageable even for major technophobes.
An online accounting system that is MTD compliant can provide an effective way to take care of your tax obligations by allowing you to directly file taxes with the HMRC. The business can view, generate, and submit the VAT returns to HMRC directly.
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Choosing technology which is easy to use, intuitive, and easy-to-onboard is key for streamlining tax reporting, and keeping businesses compliant.
Keeping up with deadlines
With Making Tax Digital measures, businesses have the option to choose between quarterly and annual reporting. However, quarterly filing is more convenient as it significant reduces the risk of making errors due to the fact that you are not looking back on 12 months’ worth of data at the end of every year. This also means you are aware of how much tax you owe, avoiding any unpleasant surprises along the way.
With accounting software, you can be notified of the approaching deadlines, which will drastically reduce the chances of missing the deadline, and risk facing hefty fines.
Preparing for the future
April 1st won’t be the end of new updates to MTD measures. In April 2024, these measures will be extended to self-employed businesses and landlords with annual businesses or property income above £10,000. In April 2025, unincorporated partnerships with an income above £10,000 will also be required to join MTD for ITSA, and, in April 2026, MTD is expected to be mandated for corporation tax.
All of these updates and changes including Import One Stop Shop (IOSS), and Construction Industry Scheme (CIS) are subject to change pending legislative changes and industry trends, which is why it is important to use MTD accounting software that has compliance built into the system to ensure that businesses are always are up to date with the continually evolving regulatory landscape.
The introduction of MTD brings forth major changes in the way businesses are handling their taxes. Businesses that are ready to adopt technology like MTD accounting software that are compliant by design, are positioned to gain significant advantages. Some of these include being able to submit VAT returns directly to the HMRC, keeping up with deadlines, and ensuring future-proof tax compliance. In the long run, these benefits outweigh the initial discomfort that these changes impose on business owners.
