What is Making Tax Digital?
Making Tax Digital (MTD) is something HM Revenue & Customs (HMRC) has been working on for many years. It’s aimed at getting better quality information from businesses earlier and more frequently than they were doing. Initially, it’s replicating the existing system but is likely to expand as time moves on.
A Closer Look at Making Tax Digital
To begin with, HMRC are targeting all VAT registered businesses who turn over more than £85,000 per year. HMRC are expecting businesses with an accounting period beginning after 1 April 2019 to submit their VAT returns online – but more than this, to keep their records on an MTD-approved accounting system.
For many VAT registered businesses (as one of our clients, a 92-year-old farmer), this is a huge step away from their comfort zone. HMRC have built-in exemptions where MTD is totally unfeasible, but in the main, businesses are having to comply.
What does this mean for businesses?
It initially means that accounting systems are having to be improved and digitised. In the main, our clients were already compliant with Making Tax Digital anyway – so this was no big shock. However, as time goes on, we expect HMRC to want more information than just the boxes on the current VAT return, or simply more frequently.
This will mean that the Artificial Intelligence (AI) systems at HMRC will be able to do more investigative work than humans would be able to – and it will be able to spot trends (and therefore businesses who are not in line with those trends) easier. This means for VAT registered businesses, enquiries are more likely, and the chance of a human being at the end of such enquiries is lower.
Generally, MTD simply means that more work is being passed to the business from HMRC. In days gone by, if HMRC saw a discrepancy with a VAT return, they’d get in touch, visit the business and assist it in rectifying any issues. With MTD, a higher quality of work is a prerequisite before returns are made to HMRC, meaning any enquiries they make are more likely to be based on issues with the figures submitted, not the work that’s being done in the first place to create those figures. HMRC are moving from a carrot-based system to a stick one.
What do we recommend?
We’d recommend being ahead of the curve. Even if businesses don’t NEED to be compliant with MTD, we’re recommending that they get ready for it anyway. This has added benefits, such as better access to financial results and an advanced view of things like their corporation tax bill – as they’re not waiting for someone to update the books. The additional benefit for our clients is that our bills are generally lower since the financial data is already in a system and doesn’t need one of our accountants to be duplicating work!
How does this help MNE?
Our job has become much more of an advisor than a do-er. Our clients now enjoy a more automated day to day relationship with their accounting, using us for near-100% advice based work rather than the 75%/25% getting it right/advising that it used to be. We are therefore far more valuable to our clients, assisting them to get to useful results far earlier than they used to be able to. This means (and sometimes with our help) they can get make decisions easier and earlier than they were previously used to.
Need more help understanding MTD?
For more in-depth information regarding making tax digital, call 0116 255 2422. Alternatively get in touch by completing the form below which will go directly to one of our making tax digital accountants.