Tax paperwork has always been a bit of a headache, but Making Tax Digital (MTD) is here to change that.
Designed to modernise the way businesses handle taxes, MTD makes record-keeping and submissions simpler, faster, and more accurate.
No more scrambling through stacks of receipts or manually filling out forms; everything is done digitally, keeping tax affairs streamlined and stress-free.
How does making tax digital work?
Although a pilot program for income tax is now in progress, MTD currently only applies to VAT. The plan would be expanded by HMRC to cover all business taxes.
MTD-compatible software must be used by all VAT-registered companies with taxable turnovers over the existing VAT threshold established by HM Revenue & Customs (HMRC) in order to manage their VAT records and submit VAT returns to HMRC.
Are any businesses exempt from MTD?
The ultimate goal is for MTD to be used by all business. However, if something keeps you from completely complying to the scheme’s criteria, HMRC might think about issuing an exemption.
Your business might be exempt if:
- You are unable to move to a location with internet connectivity because you do not have it at your current business location.
- You are unable to use electronic devices for the duration required to handle digital tax records because of your age or handicap.
- You or your business are in the process of becoming insolvent.
- It is against your religious convictions to use electronic devices or maintain electronic records.
- You’re already exempt from submitting VAT returns online.
When will you need to use making digital tax for income tax?
Although Making Tax Digital (MTD) was initially scheduled to become mandatory in April 2024, the timeline for mandatory rule compliance was changed in December 2022. After the change MTD on income tax starts on April 6, 2026. This applies to anybody who earn more than £50,000 a year from self-employment and rental property.
What is making tax digital?
A government program called Making Tax Digital (MTD) was established to encourage companies to use specialised software to manage their tax data online. It aims to reduce the burden of expensive administrative errors and streamline the record-keeping and payment processes.
Does making tax digital apply to my business?
HMRC is introducing MTD in phases, with VAT being the first. Only UK VAT-registered companies with taxable turnovers exceeding the current annual VAT threshold are currently required to file their VAT returns online.
Companies can choose to register and electronically file their tax returns through MTD if their taxable turnover is less than the VAT threshold.
What are the benefits of making tax digital?
Making Tax Digital is slowly making its way through UK businesses, but how can it benefit your business? Here are the different benefits of Making Tax Digital:
Straightforward and efficient
You should be able to work more efficiently and have a better grasp of your financial situation thanks to MTD’s simplified process. As a result, you can continue to expand your business by allocating more of your precious time to other aspects of it.
More accuracy
Avoidable errors that could slow down the tax reporting process should be minimised through a computerised system. These mistakes cost the government billions of pounds annually in addition to making things more difficult and time-consuming and possibly resulting in a fine if your submissions are late.
Security
Going digital helps alleviate the worry that you may misplace or lose documents. Moreover, tools like Adobe’s Password Protect tool, can protect your digital files and make sure you sleep well at night in the knowledge that your financial and tax information is securely password protected.
An opportunity to transform your business
Although becoming digital may seem intimidating, it also presents a chance to evaluate and enhance certain aspects of your accounting procedures.
Real-time financial data gives you a clear picture of how your company is doing, which makes it easier to compute taxes and create more efficient budgets. Moving away from paper-based accounting allows you to work whenever and whenever you want, in addition to eliminating paperwork and tools like Adobe Scan can go a long way in helping you turn paper documents into digital files, making the whole process easier.
