Unless yours is a VAT-registered business with a turnover above £85,000, you may have been able to ignore Making Tax Digital (MTD) up to now. But whatever the scale of your business – and whether you’re a sole trader or a limited company – MTD is coming. And it’s worth getting ahead of the game now.
What is Making Tax Digital?
MTD is about simplifying the process of making your tax return, giving you greater transparency over all your tax affairs and a real time (or near real time) picture of your tax obligations, so you don’t face the sort of nasty tax surprises you might be used to.
That’s not to say there’s nothing in it for the government. Its overview notes the cost of “avoidable mistakes” in the tax system is £9 billion each year, and naturally it would like to prevent those errors.
Is Making Tax Digital compulsory?
Yes. Every business, landlord and not for profit organisation, and many individuals, will legally be required to use it. Which is just one of the reasons why it’s worth getting accustomed to it now.
What’s the Making Tax Digital deadline?
VAT-registered businesses with turnovers above the VAT threshold (£85,000) should already be keeping digital records and submitting digital VAT returns. For everyone else paying Corporation Tax or Income Tax (or both) things remain a little vague, but 2021 is the earliest launch date.
How will Making Tax Digital affect me?
What’s the benefit of MTD for me?
Actually, there are lots. I recently wrote a piece about the benefits of online accounting, and everything in that post – increased accuracy, real time insight, knowing exactly how much tax you owe - applies to MTD.
Isn’t tax already digital?
Not really. Most people and businesses now submit their tax return in a digital format, but often that’s the only truly digital part of the process. Many small businesses are still left frantically pulling together paper invoices and faded receipts as the January deadline approaches.
Why should I do it now?
Given that MTD won’t make its presence felt until 2021 at the earliest, is there really any need to get things sorted now?
I’d say so, for two reasons:
How much will Making Tax Digital cost me?
Google this and you’ll find some widely differing views. According to HMRC, the cost of MTD to the typical SME should be £70. According the Federation of Small Business, that figure is likely to be closer to £2,770.
But, there’s rather a lot of politicking going on in those estimates.
The reality is that you’ll need to pay for:
How much will MTD cost me with The Tax Farm?
Switch your accountancy to us and your accounting software licence will be free or heavily discounted. It’s important to pick the software that works for you (you can talk to us about that here), but you’ll find savings whether you choose FreeAgent, Xero or Quickbooks.
From there, it’s a matter of making Making Tax Digital work for you. Effectively that means setting the sliding scale between how much you do and how much your accountant does at the right level – and that level will be different for every business.
To find out how that could work for you, give me a call now on 01772 925 233.