How Will Digital Tax Affect Your Business
Digital tax is now less than a year away. In this article, we will cover what business owners need to know about making tax digital, as well as guiding you through the steps in order to prepare for the enormous change.
HM Revenue & Customs (HMRC) is moving forward to become the most digitally advanced tax administration in the world. The next big step is Making Tax Digital (MTD).
What is ‘Making Tax Digital’?
Making Tax Digital is going to bring the United Kingdom’s tax system into the 21st century by providing businesses with a fresh, simple and modern system to keep all their tax records. It will also be providing the relevant information to HM Revenue & Customs. The live date of Making Tax Digital has been pushed back in order to give small businesses more time to prepare for these changes.
From April 2019, all businesses with an annual turnover above the VAT threshold of £85,000 will need to keep digital records for all VAT purposes. If your business falls under the threshold of £85,000 annual turnover, the digital system is voluntary.
Why Is Tax Being Made Digital?
In 2017, HM Revenue & Customs published the latest figures that estimated that the tax gap stands at £33 billion. This is 5.7% of tax liabilities. £13.7 billion (41%) of the tax gap is attributed to small businesses.
The reason the tax gap increased is due to issues such as accidental and deliberate errors. For example, this can include tax evasion or not using an accountant. Making Tax Digital is being brought in to reduce this tax gap. Digital records of tax will prevent errors with calculations. On top of this, the whole system will be easier to use as help and assistance will be built directly into the software.
VAT Deadlines for Making Tax Digital
The original deadline for submitting VAT returns and making payments is not changing; this applied to monthly, quarterly and annual VAT return schemes. The only significant change is for the businesses that are using Making Tax Digital for VAT. These businesses will need to keep these digital records and send their tax returns to HM Revenue & Customs using MTD compatible software.
Making Tax Digital Late Payment Penalty System
In the 2018-2019 draft finance bill, the government announced a two-tier penalty system that will concern all businesses that fall in the Making Tax Digital threshold. The late tax penalty for businesses and individuals will be actioned within 15 days of an overdue tax payment. However, the 2018-2019 draft bill has indicated that there will be an initial grace period for those that are late, as the new system may take some time for a business to understand and get their head around.
HM Revenue & Customs have officially confirmed that the fine for late payment will come into action from April 2019 (the same as Making Tax Digital).
Need our help with Making Tax Digital for your business?
At Stonehouse Accountant, we can work with you to prepare your business for Making Tax Digital. As a small business, we understand what it takes to manage your business records digitally.
If you would like to find out more about our team, or how we can help you through the new digital age, give us a call on 01733 265 888.