MAKING TAX DIGITAL: Advice from AOP Affiliates AEL Markhams
8 May 2019
Making Tax Digital (MTD) is now happening and has been since 1 April 2019. There is no getting away from it!. AOP Affiliates AEL Markhams offer their advice.
MTD is an important part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs especially cash-flow. This could mean the end of annual tax returns that have given millions sleepless nights especially in January.
Everyone in the UK now has access to their own personalised digital tax account and these are being regularly expanded and improved. HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world; sounds simple but there have already been a number of system issues that stalled the start of MTD.
HMRC want taxpayers to get their tax right and reduce the amount of tax lost through avoidable error. Accordingly, businesses are now mandated to use MTD from April 2019. This currently only applies to businesses who have a turnover above the VAT threshold (currently £85,000). Smaller businesses do not require to use this system from then, although they can choose to do so voluntarily.
There are four foundations of MTD namely:
1. Better use of information
HMRC believes that MTD provides significant benefits to both businesses and individuals. Digital tax accounts for all will mean that taxpayers can review the information which HMRC holds and be able to check at any time whether their details are complete and correct. HMRC can then use this information to tailor the services it provides.
2. Tax in real time
Businesses and individuals will not have to wait until the end of the year or even longer to know how much tax they should pay. You will be able to securely see your up to date tax statement via your online portal at HMRC.
3. A single financial account
Currently, most taxpayers cannot see all their liabilities and entitlements in one place. HMRC are hoping that, by 2020, all taxpayers will see a comprehensive financial picture in their digital account, just like they can with online banking.
4. Interacting digitally with clients
You will be able to interact with HMRC digitally to obtain real time access to your digital account that will present you with an increasingly personalised picture of your tax affairs, along with prompts, advice and support.
How will this affect you?
From 1 April 2020 under the new MTD regime, whether you are VAT registered or not, businesses will have to prepare six returns annually. There will be:-
a) Four returns prepared by yourself, either personally or by an agent acting for you;
b) An HMRC return which will ‘populate’ figures in to the return based on information that it has received from employers, bank and building societies and other government departments;
c) A final return, prepared yourself, either personally or by an agent acting for you, that will “sweep up” any figures not already included in the previous returns such as accruals, prepayments and other relevant adjustments.
This new MTD regime is the most significant change in the way a business reports to HMRC and should eventually ease the burden of compliance rather than increase it. If you would like any further information or clarification on this matter, please contact Marc Jason firstname.lastname@example.org, founding director of AEL Markhams Ltd, who specialise in accounting and taxation matters for photographers, creatives and their businesses.