What’s true and what’s false when it comes to Making Tax Digital? Katie Powell, MTD lead at Sage, finds out
We live in an era of uncertainties. We only need to open a newspaper, turn on the radio or put on the news channel to find someone, somewhere, deliberating what the impact of Brexit is going to be on our businesses and our day-to-day operations. Whilst the outcome is yet to be decided, preparation is key and if one thing is for sure, it’s that change is inevitable.
The same can be said of the impending Making Tax Digital (MTD) deadline. There is a lot of noise around MTD at the moment about its potential to be disruptive to businesses. After all, it is the largest UK tax change since the introduction of self-assessment in the 1990s. If you cut through the noise and ignore all the different opinions and theories, then MTD doesn’t need to be quite so overwhelming. It can be a pain free experience. Not only this, but after making the switch – the benefits will speak for themselves.
In essence, the new government scheme will require any VAT-registered business with a taxable turnover over the current threshold of £85,000 to digitally submit their tax records to HMRC via a new portal using software. This is instead of submitting them via the current Government Gateway manually.
Sorting fact from fiction
Currently though, there are many businesses who are not aware that the changes will apply to them. In fact, according to the ICAEW, more than 40% of businesses that will be affected by MTD for VAT are still not yet aware that they need to comply.
There are still an alarming number of myths and misconceptions about the MTD deadline. This can make preparing for change a bit of a minefield for businesses. It’s important to ignore the “rumours” and focus on what MTD actually means for your business.
With that in mind, it’s time to set the record straight once and for all to ensure that businesses are prepared – and ready to embrace these changes.
(1) MTD won’t affect many businesses
MTD is going to affect most businesses that have a taxable turnover above the current threshold of £85,000, 1.1 million for the VAT phase which comes into effect Monday April 1. In the long run, taking into account future phases of MTD around income tax and corporation tax, 89% of UK companies will be required to alter the way they submit their tax returns. This means it’s important to find out if you’re one of these organisations to ensure you’re ready to submit your first digital tax return on time.
(2) Brexit will delay the MTD deadline
Whilst the UK’s departure from Europe may have been delayed, the same cannot be said for MTD. The MTD start date is still the Monday April 1. For VAT returns which commence on or after that date those eligible businesses will be required to ensure they’re compliant with the new rules and regulations. Despite calls to HRMC requesting for an extension of the MTD day, it has been confirmed that the date for MTD for VAT will not be postponed.
(3) Businesses will have to pay for digital tax
Anyone opting to set up a business today would choose to do so digitally. We live in a digital and more connected world than ever before – and we should embrace it to maximise our business success. With this in mind, MTD is a way for tax returns to catch up with our digital way of working and offers a chance to decrease the likelihood of tax return errors, costing HMRC and businesses billions in lost revenue each year.
Of course, businesses will not have to pay to use the MTD service. According to Sage's research, it will actually help businesses to save up to £17,000 a year. With a saving like that, they can benefit from investing money into other focus areas. In fact, not only does MTD save the business money, it also saves time by speeding up the tax return process, improving efficiencies and productivity – with businesses currently losing 5.6% of their time to admin tasks, according to Sage’s productivity tracker.
(4) The government implemented MTD to make more money
The government decided to implement MTD to help businesses become more efficient in their tax returns. It’s their way of moving the industry into the digital way of working following a global trend.
Every business needs to do their tax returns correctly and no one wants to be caught out. HMRC implemented MTD to help businesses get their tax returns right the first time round to help save them time and stress. With the right support, the correct information can be provided successfully and without error.
Each and every business needs to take the time to set aside fact from fiction when it comes to MTD. Once you understand what MTD is and how it will affect your business, it becomes much easier to prepare. With less than a week to go until the deadline comes into effect, businesses should focus on reviewing their current processes, getting their bookkeeping in order and talking to an expert for help where needed.