What is Making Tax Digital?
There’s a good chance you have heard something about the new Making Tax Digital scheme that the government has launched. It is part of a plan to make it easier for both individuals and businesses to manage their tax returns, year end accounts, capital gains tax and VAT. The aim is to simplify the tax system, make it easier for businesses and to cut costs in processing for HMRC. It is a huge overhauling of the system for income tax and other types of tax, but we are here to help you with the transition.
Making Tax Digital for VAT
The first stage of the process is going to be around VAT. So if you have recently gone through company formations or company start-ups, then you probably don’t need to worry about it. Likewise, if you are under the threshold for registering for VAT, you can continue as normal.
However, if you are a VAT registered business with a taxable turnover above the VAT threshold, you need to start using the Making Tax Digital service. This means that you will have to keep records digitally for all incomings and outgoings and use software to manage all of this. All businesses that are VAT registered and make more than £85,000 a year in annual turnover will have to start with this while VAT registered businesses under this threshold can do it voluntarily.
Businesses will also be required to report their VAT income on a quarterly basis, although many companies are already doing this so there’s no change to that.
Income tax and other tax
The current plan to incorporate income tax into the Making Tax Digital system is for April next year but this is the ‘earliest’ that the government says the system will be brought in. This means the company secretarial services and bookkeeping departments are continuing as before.
Eventually, everyone will need to be in this system. This means sole traders, CIS contractors and even if you are paid partially on payroll and partially self-employed. All businesses will also have to adopt the system, although we have spoken to companies around Waterlooville and Portsmouth and many use a similar system already.
Currently, there isn’t much information about the corporation tax plans, but we believe that it will be rolled out at the same time or after the rollout for income tax.
What businesses need to do
If we handle your accounts, you don’t need to worry as we will walk you through the process to ensure we can collect all the digital records that we need. If you don’t use our services, we are always happy to help you with setting up the right software and processes. And if you have your in-house accounting team, then it is important that you either start using software that is compatible with the new system, or check that the software you already use will still work.
There is also a series of informational videos and articles on the HMRC website that walks you through what software you need and how to start preparing for Making Tax Digital, whether for VAT returns or for the upcoming income tax changes.