HMRC is striving to revolutionise the UK tax system and plans to do that through the Making Tax Digital (MTD) initiative. HMRC wants to be the most efficient tax authority in the world, and embracing the use of digital data appears to be the path towards that. The current system can be scrutinised for not being effective enough, efficient enough or straightforward enough for taxpayers. By bringing in a completely digitalised tax system by 2020, HMRC aims to make those problems a thing of the past whilst also bringing down the overheads involved in managing UK tax affairs.
The changes will effectively bring an end to self-assessment, providing a new experience for a wide range of taxpayers. Most businesses, the self-employed and landlords will be covered by the changes, with the system requiring the majority of business owners to keep a digital record of their accounts and transactions.
Announced for the first time in the Spring 2015 budget, MTD for VAT reporting comes into play starting April 2019. With it comes the introduction of a set of rules for submitting returns with three main requirements. Firstly, digital record keeping will be introduced, meaning that all VAT registered companies will have to store all transactions in electronic form. Secondly, digital links; there will be a digital link between the final numbers and their source data. Thirdly, digital submissions; each and every submission will be made using approved software through HMRC’s new and improved gateway.
It’s important to note that digital quarterly reporting will only be made mandatory for businesses with a turnover above the VAT registration threshold of £85,000. For businesses, including landlords, with a turnover below the threshold, quarterly reporting will remain optional. There are definitely benefits to choosing to keep your records digitally, making them more robust and enabling an efficient transfer of data between clients, agents and HMRC. Agents will also be able to react to live data, meaning they can proactively offer advice.
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