What is Making Tax Digital?
And will it affect me or not?
The internet is flooded with information about Making Tax Digital, some of it helpful, some of it not so helpful. Despite that, we still find, when we’re having conversations with people, that there is a gap in knowledge about what is actually going to happen in 2019, and how much it matters. So we want to set the record straight.
In short, Making Tax Digital will be the biggest change to the taxation system in 20 years. This new government legislation will change the way that businesses submit their financial data to HMRC.
We’re most frequently asked:
- What does Making Tax Digital mean?
- When will making tax digital affect me?
- How often will I have to complete my tax return?
- Will I have to pay more tax?
- Can I still use spreadsheets?
- Should I be worried? Should I panic now?
- Are there any benefits for me?
So, instead of being another website that muddles your brain with paragraphs and paragraphs of legislation and jargon heavy guidance, we asked Joe and Luke, our resident Cloud Accounting Specialists and (and all-round top blokes) to answer your questions in their own words.
Since we made this video, we’ve also found there are still some misconceptions out there that need clearing up:
Top 3 most common misconceptions about Making Tax Digital
1. It doesn’t affect me
Quite simply, it does and it will. From April 2019, businesses with a turnover above the VAT threshold (£85,000) will be required to submit quarterly VAT information in this way.
By April 2020, HMRC will widen the scope of MTD by asking for quarterly financial data for all businesses – that is for sole traders and partnerships, and for limited companies. It will even include people with rental property income!
2. I thought this had been scrapped. Hasn’t it?
There has been a lot of back and forth with announcements on MTD, so it’s understandable people are confused, or simply don’t have the time to keep up to date. There was a postponement after the announcement of the original deadline in 2018, to push the start of MTD from 2019/20 to allow businesses and accountants more time to prepare. Business Owners following the updates may have stopped panicking for a while and put the deadline out of their mind for this reason, rather than getting themselves prepared early.
More recently, there was an announcement that ‘personal tax returns are here to stay’’. This threw people off and caused the assumption to spread that the whole digital tax move had been scrapped. This isn’t the case, rather it means that now we’ll have the pain of reporting quarterly to HMRC and the pain of a year end personal tax return. Joy!
3. I’m probably already covered by my bookkeeping
You may no longer be handing paper pages over to your bookkeeper, but that doesn’t mean that your software is necessarily compatible with HMRC. More data is going to be passed to HMRC than ever before, and it all has to be done digitally, meaning that you will be required to submit your returns through an online accounting software. That also means, if you’re using spreadsheets, you’ll have to use a bridging software to push the required data into an online accounting software that can send the digital data to HMRC. But don’t worry, it won’t cost you a fortune to switch to a cloud accounting software, and it will benefit all your business processes to do so. Take a look at our top three recommendations and their pros and cons.
If you are already on a package like Xero then you are halfway there. The next step to check - is your bookkeeping data really up to the scrutiny of HMRCs new regime?
Still not sure? Ask us a question here.
Or are you ready to try the most beautiful accounting software? (And our top recommendation?) Book a Xero demo today by emailing email@example.com.