Making tax digital has been showing up a lot in the news lately, and it has brought major changes in the tax system for UK businesses in a good manner. Let’s understand what MTD is, and how it is rolled out in different phases in the UK.
What Is Making Tax Digital?
The making tax digital initiative was started from 1st April 2022, by the UK government to reform and modernize the tax reporting process for business ease. The system allows for storing the pertinent company data of the digital records updates in one place automatically, without any human intervention. This process keeps the system transparent and eliminates the need of filing year-long taxes at one time, which causes lots of trouble for businesses in the tax season.
This initiative provides a single digital tax account to each business, and from there the businesses can submit all of their tax information to the HMRC on a quarterly basis. This step makes the HMRC the most advanced tax administration from the technological perspective in the world, by removing the need for annual tax filing.
Benefits Of MTD For UK Businesses
The MTD system is beneficial for businesses working in the UK, as it provides a quarterly basis tax filing facility, without any trouble of a one-year filing system or submitting past-years physical records to the authorities. Once you upgrade your accounting system with this software, you don’t need to rely on external accountants for filing your tax returns on time.
- Real-time Tax filing
The quarterly tax filing system provides financial transparency of your debts and taxes which need to be paid. This system helps you strategize your money for the remaining taxes and debts to be paid by the end of the year.
- Stress-free taxing
With every passing quarter, your tax data gets reduced with the filing of taxes timely. And at the end of the year, your risks of error making are reduced a lot.
- Online tax filing
The system provides only online records maintenance, which is enforced by the HMRC for regular updates and accounts management. This removes the need of maintaining physical receipts and records, without any pressure of damage or loss of receipts.
- All-time tax information access
Having a single digital tax account, the software provides a single dashboard where all the tax information can be viewed and accessed anytime and anywhere. You can use any device for access – laptop, tablet, for viewing and editing the data.
Different Phases Of MTD
The MTD initiative reforms the complete tax system of the UK, which needs to be rolled out in a phased manner for easy adoption of new tax practices by UK businesses and government authorities. Therefore, it is divided into different phases with their respective functions to be performed.
It started in April 2019, when MTD VAT was introduced as mandatory for VAT-registered businesses (including partnerships, ltd. companies, non-UK businesses, trusts and charities, and sole traders) with taxable turnover above the threshold of VAT. Though complex businesses were given a six-month deferral from the start date till 1st Oct, 2019.
From April 2024, the ITSA of MTD will be made mandatory for self-employed and property income-sourced businesses. This system will apply to self-employed businesses with a turnover of business plus gross rental income over EUR 10,000.
The MTD ITSA will extend to general partnerships (not limited liability partnerships or corporate partnerships with non-natural partners), mandatorily. This clause will apply to partnerships having a turnover of a minimum EUR 10,000.
The making tax digital initiative of the UK government can become the most advanced tax filing system in the world. To achieve this, the MTD needs to be rolled out in a phased manner, for proper adoption by different types of businesses according to the complexities of the files.