The biggest change to the UK’s tax system for a generation is happening right now – but do you know how your business will be impacted? A recent FreeAgent survey of small business owners in the UK suggests that one in five still don’t know what Making Tax Digital (MTD) is, let alone how they’ll be affected. If this includes you, here’s a quick rundown of the things you need to know.
1. No more annual tax returns
Making Tax Digital is intended to make the reporting of your business’s financial information to HMRC more efficient, with no more ‘bureaucratic form filling’. This includes the end of the annual tax return as we know it for everyone impacted by MTD – instead you will send information to HMRC digitally at least four times a year via your digital tax account. This doesn’t mean that you’ll have to complete four tax returns per year, you’ll simply need to provide more regular financial updates online.
2. Making Tax Digital has already started
The consultation period for MTD has ended and legislation is being drafted. We can expect to hear more announcements about the practicalities of the initiative later this year.
You may have noticed that you already have access to your digital tax account with HMRC. This account is integral to MTD – it’s where you will update HMRC about your business finances and access all your tax information.
There are a lot more changes to come in the next few months that we already know about. Here’s a timescale highlighting the biggest changes for Limited Companies:
3. You will need to submit your business’s figures using software
You will need to keep HMRC informed of your business’s finances digitally through some form of accounting software. HMRC has stated that spreadsheets might be OK for this but the spreadsheet you use will need to be able to connect to your digital tax account. It’s also worth bearing in mind that there are a number of other reasons to ditch spreadsheets when it comes to recording your financial data!
4. Tax updates will happen in ‘real-time’
HMRC have said that once MTD is up and running they’ll provide you with your business’s tax position in ‘as close to real-time as possible’. To help prevent errors and stop tax due or repayments owed from building up, HMRC will collect and process the information you provide throughout the year. This means that you shouldn’t have to wait until the end of the year to find out how much tax you owe.
5. A few groups are exempt from MTD
The threshold for Making Tax Digital obligations has been set at £10,000 – if your business’s annual sales fall below this figure then you won’t have to take part; however, you can opt in if you want to.
For more information and advice on MTD for your Limited Company, contact Driver Unlimited today!