The government have launched a relatively new scheme, Making Tax Digital – an initiative to make it a more efficent, smoother process for individuals and businesses to keep on top of their tax affairs. This aligns with the technological trend we have seen overtime and are continuing to see. Our world today is now more digital than ever before.
So, what does MTD involve?
VAT-registered businesses that have a taxable turnover above the VAT threshold can use the service to keep files digitally and use online software to send their VAT returns.
Self-employed businesses or landlords can voluntarily use software to keep their records digital. They can send VAT returns as well as sending Income Tax updates to HMRC, rather than filing a Self-Assessment tax return - this is part of a pilot study for HMRC to move digital for all taxes (specific software is required for testing income tax updates)
You must sign up to the scheme and ensure you have the appropriate software
And how successful has the service been?
Research from Reuters found that a quarter of tax professionals said that using MTD to report tax VAT returns, left a positive experience, with the process being more efficent and easier to use.
Why was the scheme launched?
This was implemented due to the latest tax figures showing over £9 billion a years worth of avoidable mistakes in paying tax.
Improved Accuracy from digital records + unique software created + direct transmission of information to HMRC = less tax lost
What are the benefits?
- Accountants and clients can collaborate in real-time with ease of access to account information
- No need for receipts to be kept
- Streamlined tax compliance processes
- 51% of companies believe this creates a more efficent and accurate system for VAT returns
- 19% of companies believe better visibility of tax liabilities is offered
Are there any disadvantages?
- Some businesses have struggled with the change to the VAT filing process
- Still, not everyone has heard of the new system
- HMRC approved accounting software must be used which is quite costly, both initially and due to the related training
HMRC are in talks of increasing the use of this service, making it usable for other taxes.