How to Make Tax Digital – The Simple Way To Get A Tax Break

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Make Tax Digital (MTD) has recently been in the news as the initiative is designed to majorly change the UK’s tax system. The shift to this new tax system has started already, and the transfer will be implemented in stages over the next few years. The basic concept of making tax digital is easy to understand as it involves doing taxes digitally. The digitalization of the tax system introduces multiple advantages for taxpayers and tax authorities. However, taxpayers must obtain a working knowledge of the system’s concept, implementation deadline, and benefits.

This article includes a detailed discussion of the UK’s making tax digital initiative and how it will make things easier for taxpayers.

What is Make Tax Digital?

Make Tax Digital aims to digitalize the UK’s tax system. This new tax system requires businesses and individuals to use digital tools to keep records and submit their tax returns digitally. The goal of MTD is to make it easier for taxpayers to fulfill their tax obligations. It further aims to aid HM Revenue and Customs (HMRC), the UK’s tax authority, to process and analyze tax information more efficiently.

Under MTD, businesses and individuals with VAT registration must use compatible software to keep digital records and submit their VAT returns online. Other tax obligations, like self-assessment tax returns, will also be included in the MTD program.

Changes Brought by Make Tax Digital Initiative

The making tax digital initiative will bring two major changes.

  • The Digitalisation of Recordkeeping: Paper-dependency of the previous tax system is now eliminated. Data of all taxpayers will be entered and recorded using online tools. Taxpayers and tax authorities will be able to access the information remotely at any time.
  • Quarterly Recordkeeping: The previous system included annual returns filing at the end of a year. The new system in place has made filing a quarterly procedure. Taxpayers will be required to file every 3 months.

Implementation Timeline of Making Tax Digital

Making tax digital is beneficial for taxpayers and the authorities, but it will take everyone some time to understand and get used to the new system. Below goes the timeline proposed to implement the making tax digital system.

  • April 2018: The pilot phase of making tax digital starts.
  • April 2019: Businesses with turnover crossing the VAT threshold (£85,000) are required to maintain digital records.
  • April 2020: HMRC broadens the MTD’s scope and adds sole and partner traders in the income range of £10k and £83k to the new system.
  • April 2022: VAT-registered businesses follow the rule of the making tax digital system to file their first VAT returns on or after April 2022. This also includes businesses below the VAT threshold.
  • April 2024: Landlords and self-employed businesses with £10,000+ annual property or business income come under the new tax system and are to follow the MTD rules from the following accounting period beginning on or after April 2024.
  • April 2025: Unincorporated partnerships having £10,000+ income enters the MTD’s regulation starting from April 2025.
  • April 2026: Corporation tax is said to come under MTD by April 2026, although it depends on legislative updates.

Benefits of Making Tax Digital

Here are the many benefits of making tax digital.

Easy Filing

The previous tax system required yearly filing, which meant tracking and recording 12 months of data at once. This system was tricky and left space for errors. The new quarterly filing system creates less stress as you do not need to crunch a lot of data in a short time. It also reduces the chances of errors.

Improved Accuracy

MTD requires taxpayers to use approved software to record and report their tax information. This can help reduce errors and improve the accuracy of tax returns.

Greater Convenience

MTD allows taxpayers to access their tax information and submit tax returns online, which can be more convenient and easier to track than paper-based processes.

Better Record Keeping

The system of making tax digital requires taxpayers to keep digital records of their tax affairs, making it easier to keep track of financial information and reducing the risk of losing important documents.

Improved Efficiency

Tax authorities can process tax returns and other information more easily and automate tasks under MTD. This will help improve the entire tax system.

To Sum up

Doing taxes can be a little tricky, and doing taxes on paper can be more demanding. The new making tax digital system in the UK will make taxes more convenient than before. Once familiar with the new regulations, you will become better at filing your taxes. The quarterly filing will allow taxpayers to adopt a more systematic and organized approach toward taxation. Overall, it will take away the stress of recording data for a huge period and filing returns at the last moment.

 


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