Plans to Make Tax Digital have arisen with the aim to modernise the UK tax system by 2020 through eliminating inaccuracies and making the existing system more transparent. The government’s main goal is to align tax administration into a more efficient, effective and simpler system for taxpayers, with the ultimate aim of reducing the requirements of self-assessment for businesses and individuals.
The timetable for the transition into a digital tax system has recently been delayed following the Treasury’s acceptance that the schedule for Making Tax Digital needed to be relaxed in order to make sure businesses can make the change comfortably and easily. As it stands, under the reformed MTD timetable only businesses with a turnover above the VAT threshold of £85,000 will be required to keep digital records, and only for VAT purposes starting from 2019. It will not be mandatory to make the switch to MTD and update HMRC quarterly for other taxes until at least 2020. In this initial phase of MTD businesses won’t have to update HMRC more regularly as VAT already requires quarterly returns.
In terms of the logistics of MTD, there will be some software requirements to bear in mind. For those who are currently already using supported accounting software, whether that be kept on a desktop or in the cloud, the transition to MTD-compatible software will typically be handled by your software vendor. An issue that many people tend to be concerned about is that numerous businesses don’t presently keep digital accounting records but will soon be required to do so. HMRC has advised that for those who opt not to move to commercially-available software package, there will be free software products with free updates provided. It has also been indicated that spreadsheets can be used for record keeping, as long as it meets the essential requirements for MTD.
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