You may have heard of Making Tax Digital. It’s the UK Government’s bold initiative to revolutionise tax accounting, impacting millions. They made a few announcements recently, so we thought we’d help you out by highlighting a few key points.
But first, let’s quickly run through what Making Tax Digital is all about and why it’s a good thing for UK businesses.
What is Making Tax Digital?
The UK Government is on a mission to make tax accounting easier for businesses and individuals, freeing up valuable time.
It’s all part of HMRC’s ambition to overhaul the tax system into one of the most digitally advanced in the world. Making Tax Digital (MTD) is a key part of that.
MTD is a push to modernise tax record keeping and submissions. Digitalising taxes for good. MTD applies to most businesses, micro-businesses, the self-employed, landlords and individual taxpayers.
There are three parts to the programme:
- Making Tax Digital for VAT
- Making Tax Digital for Income Tax
- Making Tax Digital for Corporation Tax
There are different rules for each, but all three play a part in the crusade against the old ways.
What’s the latest?
Slowly but surely, MTD is transforming how UK business owners manage their tax affairs. Many already use HMRC’s online services to keep on top of tax-related tasks, but MTD takes it to the next level.
The last major development in April 2019 required UK businesses (with a taxable turnover above the VAT threshold) to maintain digital VAT records and submit VAT returns to HMRC using accounting software.
And that software must be MTD compatible. Examples include Sage Business Cloud Accounting, Xero and QuickBooks. See GOV.UK for a definitive list of suitable software.
That’s the story of MTD for VAT so far, but the Government has since confirmed that VAT-registered businesses with a taxable turnover below the VAT threshold (£85,000) will have to comply with MTD rules on 1 April 2022.
Businesses with a turnover below the threshold are welcome to sign up to MTD for VAT now; this is a great way to get into the habit of digital record-keeping.
As for MTD for Income Tax, this scheme will replace the current Self Assessment system from 6 April 2024. Impacting millions of unincorporated businesses and landlords, providing their income exceeds £10,000. If it doesn’t, then the Self Assessment system still applies.
MTD for Corporation Tax is a different beast altogether. The full details of how and when it will come into effect are yet to be confirmed. HMRC recently published a consultation document with potential requirements, but these are subject to change.
Why Making Tax Digital is a step in the right direction
Businesses that don’t digitise will be left behind. The pandemic alone has accelerated the use of technology for countless companies. So, MTD is a perfectly natural progression. And one that will make a world of difference.
Making Tax Digital means:
- Less paperwork and misplaced paper
- Fewer costly mistakes
- Better visibility
- Improved cash flow
- Effective record-keeping
- Laying the foundation for healthy digital habits
- And more time to focus on what matters.
Tax accounting isn’t the only thing better done digitally...
What else can businesses digitise to make their lives easier?
Advanced software means that we can put the painful processes of the past to rest and rollout initiatives like MTD. Much like traditional tax accounting practices, the traditional way of managing company share schemes is costly and incredibly time-consuming.
That’s where a digital equity management platform comes in. Vestd is a purpose-built digital platform that makes it easy to reward key players with shares (or options) and manage equity safely and effectively.
On Vestd, you can:
- Design a share or option scheme online
- Digitise an existing scheme
- Generate, digitally sign and store documents
- Visualise company ownership and shareholders’ stakes
- View a real-time digital cap table
- And much more.
Book a free discovery call to find out more. Circling back to Making Tax Digital, Sage has published a handy checklist for businesses that’s definitely worth a read. Be sure to regularly check GOV.UK for updates and get ready to embrace a better way of doing business!