Making Tax Digital (MTD) is HMRC’s initiative to revolutionise the UK tax system to make it easier for individuals and businesses to get their tax right. The HMRC claims that its ambition is to become one of the most digitally advanced tax administrations in the world. They want tax administration to become more effective, more efficient and easier for taxpayers.
MTD will bring all your tax details into one online account, so you’ll be able to see what’s happening real-time, update your information, register for new services, see how your tax is calculated and alter payment options.
April 2020 is the earliest date that quarterly reporting will become mandatory for income and corporation tax for all businesses with a turnover above the VAT threshold, but will remain optional for those with a turnover less than the threshold (£85,000).
Their pilot for VAT is already open to half a million businesses, and all VAT registered businesses will be required to submit this way from April 2019, though if you’ve chosen to register for VAT and are still under the threshold (£85,000) you may opt out for now.
So, what does this mean to you? Well, if you are a small business and aren’t already using software or spreadsheets to track your income, you’ll have to. You’ll be able to use a phone app or desktop software to send your information directly to HMRC online. You’ll also need to have real-time recording of sales/income and enter manually any cash income and expenses, and it’s likely you’ll store your information on the cloud.
Any app or software you choose to use does not need to be approved by the HMRC, though they are currently working with vendors to test software solutions to send the VAT data to them.
If all this still sounds too complicated, or you’re just too busy to want to worry about it, then you can pass it off to a nominated bookkeeper or accountant.