The government have plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs. Sounds good in theory but there are some significant short-comings that have yet to be ironed out.
But what is MTD?
At the moment this is geared towards individual tax payers. You can now sign up for a Personal Tax Account that will allow you to get a lot more information on your tax position and the records held by HM Revenue & Customs. The government have four clear aims.
Better use of information
Tax recorded in real time
A single financial account
Interacting digitally with customers
Payroll information supplied by your employer is transferred to HMRC monthly and you will be able to see this in real time. You will be able to see exactly the information that HMRC hold on you and how this affects your tax position. You can also see your national insurance contributions and see where you have gaps. This could have a dramatic impact on your state pension when you retire.
We would urge you to set up your own personal tax account as soon as possible just to see what is going on. It does have it's pitfalls. One client noticed that HMRC had omitted one of their employers from the system! So they don't get everything right.
How will MTD effect Businesses?
HMRC certainly are ambitious. The aim is to have the most advanced tax administration services in the world. Clearly this is geared towards reducing costs within HMRC but also to ensure that all businesses pay the right amount of tax at the appropriate time. For instance in 2014 to 2015 over £3.5 billion of revenue was lost due to mistakes made in VAT returns alone.
If your business is VAT registered then you need to start planning for April 2019 when the MTD system will come into effect for your business. Not only will you be required to submit your quarterly VAT return you all submit quarterly updates based on your accounting records. What is clear is that the day of the hand written cash book and bag of receipts is coming to an end.
So if your business is VAT registered then you need to consider what type of software you will use to maintain your accounting records. If you need some help then get in touch.
Making Tax Digital is coming and will have a dramatic effect on all VAT registered business from 2019. It also means that HMRC will start to look at your business in more depth on a quarterly basis. There is a view that this will also lead to some amendment to the way in which corporation and income taxes are collected. If you think that HMRC will have all details of your income and costs on a quarterly basis then they can start to assess you for your tax on a quarterly basis too.
We are also worried about the immediately impact of the introduction of this system. At least with auto enrolment for pensions and RTI for payroll submissions there was a staged roll out. This is not the same for MTD. That's about 2.5 million businesses in the UK.
Need to talk about this then get in touch.
For more information visit HMRC's website.