Making Tax Digital: dispelling the rumours and untruths
Making Tax Digital (MTD) has been in effect for a few months now. As of April 1st 2019, businesses are supposed to have implemented a digital tax solution ready for the first deadline of August 7th (for the first quarter of April to July). This is in an effort to close the tax gap, reducing overheads to manage taxes. The HMRC is intent on becoming one of the most advanced tax authorities in the world.
Currently, the tax gap costs the Exchequer over £9 billion a year in mistakes. Making Tax Digital aims to make tax administration more effective, efficient, and easier for taxpayers by replacing traditional tax returns with a digital system.
But with a new system comes a lot of confusion. We’re here to dispel some of the myths and let you know why you shouldn’t be scared.
Myth one: you’ll be penalised if you get it wrong
For a lot of businesses, the worry is that one small misstep will land them in a world of trouble. The truth is, the Government announced that they are taking a soft approach with anyone that shows they are at least trying to get it right.
They’re also taking it slow with Income Tax, which is in a pilot phase in relation to Making Tax Digital.
Myth two: everyone should have started by April 1st
Since the changes came into effect, people believe that you had to start using the new system straight away. But this can’t apply to everyone. Certain businesses are in a deferral group, and they will have been notified if they are. Some businesses also file their taxes quarterly, so won’t need to file their first returns until August. Also, be aware that nothing has to be submitted until August 7th, which covers the period of April to July.
And, as mentioned, Making Tax Digital is only compulsory to those over the threshold of £85,000. If a smaller company is VAT registered yet below the threshold, they can choose whether to join or not.
Myth three: People are too confused
Prior to April 1st, the common rumour was that no one even knew about Making Tax Digital. But HMRC said 8 out of 10 businesses were already making preparations as far back as December 2018. They also made every effort to let all business owners know of the impending changes.
People also say it won’t make a difference, that it won’t reduce errors. But by moving to a digital environment, you reduce the impact of lost receipts, which 65% of businesses admit to have done. It’ll also help the two-thirds of people who don’t feel confident in tax-related matters.
It’s a new system – of course there are going to be rational fears and early-adoption bumps, but there are plenty of resources out there to make the transition a smooth one. In the long-term, filing VAT returns will be a much simpler, more efficient process and we’ll be glad to have it.
At Big Hand, we know a thing or two about tax We have a host of business experts ready to give SMEs advice and lead you in the right direction. To find out more, get in touch with us on 0161 327 2911.