So, you’ve heard of ‘Making Tax Digital’ or ‘MTD’, but what does it mean, who’s affected and what are the main benefits?

To answer the first part, ‘MTD’ simply means keeping business and records digitally and updating them electronically through the daily process of recording business transactions online. This will revolutionise the way people interact with HMRC because rather than submitting an annual tax return containing historical data, individuals will each have their own ‘live’ tax account which is continually being updated as information flows automatically between bank accounts, bookkeeping software and HMRC.
To answer the second part, all but a tiny minority of businesses will have to comply. Exemptions are available for people with religious objections, for people unable to participate due to age or disability and for those without an internet connection. Initially all VAT registered businesses with turnovers above the VAT threshold will have to comply, with other businesses being affected soon after.
And finally, what benefits might be expected from the new system? Well firstly, people will always know where they stand when it comes to tax as the picture will be an ongoing one rather than a snapshot after the event. They will have all the relevant information in one place such as the amount of tax already paid and the amount of ongoing profit on which tax will be due. They’ll be able to see their liabilities and assets in one place, in real time, which will help with business planning and budgeting. No longer will people be wondering how much tax they’re liable for at year end, and there shouldn’t be any large build ups of tax owed back to them by HMRC as tax information is collected and processed in as close to real time as possible. Moreover, the fact that your financial information will be online rather than held inside a single computer, means you’ll benefit from able to collaborate more effectively with your accountant or bookkeeper as you discuss transactions from within the software itself. It’s my belief that once people get used to the new way of doing things, they’ll wish it had happened years ago!
You’re welcome to call the Torbay Bookkeeping Practice on 01803 363089 to arrange a free consultation and demonstration of Xero and/or QuickBooks Online digital accounting software to help you get ready for MTD.