Making Tax Digital, sounds like three simple words which can turn the tables when it comes to small businesses owners and self-employed people. Government-level plans to make tax digital means that the accounting records of all authentic firms are required to be stored electronically. According to the government, The ‘Making Tax Digital’ plan is deliberated to relieve taxpayers from the burden of taxes.
What does Making Tax Digital (MTD) Mean?
HMRC, a UK-based non-ministerial is responsible for collecting taxes and other handling matters like issuing national insurances, etc. The MTD plan of HMRC seems to give the UK a world-class tax system. As per the current HMRC schedule and planning, the time when the businessmen, landlords, self-employed people, and small business owners who have the qualifying earnings of above £10,000 a year, will deal with their tax affairs digitally, is not far. This will get rid of all the paperwork mess. No more tossing junk files away, no more inconvenience and wasting of time to find the taxation history of a specific person.
The HMRC’s aim also includes that more than five million businesses shall be affected by this change in taxation and every business company will have digital tax accounts on HMRC. According to recent surveys, about two million firms already have their accounts set. When this tax system will be followed, every business firm will be required to keep their digital tax accounts updated, with every detail in a systematic way.
A digital tax account held by HMRC will be connected to a system that will keep track of all the updates, and new and old entries, and every business shall be required to maintain their electronic accounting records. Through MTD, it will be possible for all the eligible taxpayers to keep an eye on all the tax accounts that contain relevant information of other government systems.
HMRC mentions that there will be no need to complete a self-assessment tax return by the end of every year. However, some taxpayers might find the need to make adjustments towards the year-end in their digital tax accounts. For this purpose, they might need an accountant, and there are many accountants in Milton Keynes who will guide them through. MTD will be a lot easier and less burdensome unlike the tax returns of today.
Making Tax Digital – The Foundations
HMRC’s aims and objectives for the MTD project are very high. They aim to give this system a modern layout which will be more effective and trouble-free to use, making taxpaying easier for customers. HMRC is looking forward to becoming the most advanced digital tax administration in the world.
We all agree that Making Tax Digital is the right idea for a business in the near future. Although there are certain disagreements regarding the time provided for a change in this system. Therefore, the UK government has announced that businesses shall have enough time to accustom to the changes in the taxation system.
The government will ensure the provision of this digital tax system for all the businesses, with full support to carry out taxes and reduce any amount of tax lost meanwhile.
To proceed with things in this manner, HMRC has come up with four base foundation for Making Tax Digital (MTD)
Use of Information Provided
HMRC has set several benefits for its customers for MTD, such as the submission of information to HMRC is not required over and over again. HMRC will store the data of its customers and will have access to all the relevant data provided. HMRC keeps track of the collected information from employers, banks, and other government systems. HMRC intends to use that information to help its customers and improving their services for individual businesses.
Having digital tax accounts means that business owners will be able to check the information provided to HMRC, and can correct or alter the details at any point.
Track of Time
With MTD, the whole waiting period will eliminate. The customers will not have to wait till the end of the year to know how much tax they have to pay. HMRC tends to be responsible for keeping track of all the information and processing it from time to time, this will relieve the customers from the onerous duty of waiting till the end of the year.
A Single Financial Account
HMRC plans to give customers entitlement in one place. This means taxpayers will be able to see a clear view of finances in their digital accounts, more or less like online banking.
Engage Digitally With Customers
HMRC will enable customers to engage with them digitally at their best suitable time. The digital account to which the customers will have access will provide them a clear and more personalized picture of their taxes, along with advice and support personally or through online chat and safe messaging. The accountants in Milton Keynes will personally guide and support you through it if you need it.
The roadmap for MTD was published in December 2015.
Factors that might Effect Making Tax Digital (MTD)
There is a number of factors that might have a noticeable effect on the whole MTD implementation.
These factors are given below in detail:
Snap election affected the development and implementation of Making Tax Digital, though it affected the Finance Bill 2017. The Finance Bill initially contained about 800 pages but was later cropped to about 150 pages to get it passed before the election. People thought that this would make it leave the picture, but found out that it made its way back with the announcement in the Queen’s Speech regarding finance bills. Businesses need to consider what the 2017 election will mean for their finances.
Several people, who were supposed to oversee the development and implementation of MTD, lost their position. This means that the basic founders and people who were working for the MTD work for small business firms are not there anymore. Now their successors will have to start all over again from scratch to help everything fall into place and make the MTD plan work.
On top of the chaos, the election caused, MTD might be affected by Brexit. Compared to Brexit, Making Tax Digital is a far less important issue. Such an internal issue like tax reform seems like it may not have quite a big impact on the government and will end up losing its attention to Brexit.
Response of the Small Business Community
Although the main objective of HMRC’s MTD is to provide small business communities a modern digital experience and make it simpler and easier for taxpayers, yet there is a number of small business owners who are awfully opposing to it. People always have a hard time endorsing change, so here they go as well. The main cause of the opposition is some kind of misunderstanding and somewhat mistrust. These business owners are not realizing what they are missing out on. Lack of awareness might be a big reason for the small business communities not preferring MTD. However, the acceptance of new technology has nonetheless been a long process.
On the other side, some financial experts working with small businesses are calling out for modifications related to the timings of MTD. However, some business owners are pointing out certain genuine concerns, like getting a clear and thorough understanding of how MTD will work and affect businesses. But the others are just fearful of the whole process which is no help.
Whether this will affect the MTD rollouts or not is yet to witness. But since the MTD is made specifically for small business firms, so to make it succeed, it is important that they consider it. Otherwise, if these business owners keep resisting it, it is possible that it might catch the attention of the lawmakers.
Impact of Making Tax Digital on Small Businesses
Despite all the noticeable perks of HMRC, MTD is likely to get the small businesses to do more work rather than less, at least at an initial stage. Because the majority of the firms do not keep records digitally, at an early step, it is critical to decide ways to transition into a digital system.
Smaller businesses keep their details and information simple. Those who are just starting out must stick to the best principles. They should take a look at their current position of data, whether noted on paper or entered electronically and find ways to induce technology and digital tax system in their businesses. However, you have probably heard the phrase “better late than never”, so it is always good to carry your business towards betterment. After all, it is a digital era, and almost everything is required to have a digital presence, so it will definitely be effective for your business to get acquainted with working digitally.
There are firms that have negotiated the auto-enrolment pension scheme. These firms would have the understanding of the significance of keeping track of physical dates to ensure orders are ready before the deadline. However, it is quite a challenge to allow enough time to get everything in place before MTD applies.
One major priority at the moment is choosing the software. A business needs to jot down what its aim is and what it wants to achieve. For example, will the software have the feature to scan bills, etc.? If not, some companies might have to outsource accounting, which would lead to being an expensive option. Experts advise that business owners should seek to make benefits from the change since they are bound to be linked with MTD.
HMRC’s decision to Make Tax Digital has its own basis when it gets implemented. Digitalization of taxes will end the cumbersome bureaucratic form filling which happens in the present taxation process. It will also save time and eliminate unnecessary delays. Eligible taxpayers will be assigned digital accounts which means their limited information will be uploaded automatically.
People embrace the digital revolution in all walks of life –and they have to because this is a digital era and it would be hard if they do not walk side by side with technology. However, millions of people have been benefited from the digital world, because it helps make things simple and convenient for us. But the question remains among all accountants in MK, will Making Tax Digital bring the same benefits in terms of simplicity and convenience for all types of businesses?
Every small business owner and self-employed individual that earns more than £10000 in a year, will be required to get themselves registered and get a digital tax account. These accounts will be needed to be updated every three months by the owner. HMRC‘s objective is to benefit approximately 2.5 million businesses with MTD, by eliminating unnecessary delays and bureaucracy.
However, there are many thoughts otherwise. They exclusively contested the claim of the chancellor for this plan, that this move is a game-changer and should bring revenue of about £625m. This was dismissed because it seemed like a surreal projection, and it was considered that it will not take, the expenses that the small businesses will have to bear due to change, into account.
The Bigger Challenge
This project shall not be that much of an inconvenience for larger businesses as it would be for smaller ones. They are fully prepared and already have accountants and software to endorse this change and make it easier for them. However, smaller businesses will have a bit of a hard time hiring additional staff, purchasing suitable software, and levelling up their expenses. There can be more but mentioned above are the basic expenses, without which they cannot do if tax digitalization isn’t present.
The Government took this matter under consideration and confuted these options. The government mentioned that smaller businesses shall not need to buy such expensive software yet, as the government is preparing free software that will help small businesses keep track of their expenses, income, and finances digitally.
As one of the most premier accountants in MK, we are tax experts. Contact us today for help with your taxes.