Making Tax Digital – a brief guide

As a nation, our connection with digital services is interwoven within our day-to-day activities. The apps on our phones give us information on how busy our commute, live updates on bank balances, advice on what shopping we need to order for the coming week, and business tools such as where staff are working, and tracking suppliers and materials. So having real time information on our taxes is just the next step, right? 

For those who are not aware, HMRC is digitising the tax system in what is the largest shakeup of the personal tax system in a couple of decades.  The aim is to ensure that the process for taxpayers is simplified, and to develop a more efficient tax system with better use of information.  The programme will be rolled out with some groups such as smaller housebuilders and developers being one of the first to be involved.

The project has been named ‘Making Tax Digital’ (MTD), and will apply from April 2019 to unincorporated businesses and landlords with turnover above the VAT threshold (currently £85,000) in relation to VAT only.  The direction of travel is for the entire tax system to be fully digitised, and we should expect to see further businesses come into scope from 2020 onwards.

There are three steps to take now to ensure you are well prepared for the transition:

• 1.    Obtain your Government Gateway account – HMRC is already collecting real time data, and this can be found at www.gov.uk/personal-tax-account. With the onus switching to the taxpayer ensuring that the correct taxes are being collected it is crucial you can access your account.
• 2.    Assess whether your record keeping methods are adequate for the new reporting structure. Having a paper file of receipts alone will no longer be acceptable, and information must at least be accumulated on a spreadsheet which can then be uploaded using specialist MTD software.
• 3.    Consider whether an online accounting product is suitable for your business. The decision to go digital should not just be from a compliance standpoint. There are online products in the marketplace and apps to support their use across many business sectors, helping to save time and money.

Each of these steps will almost certainly introduce further queries, for which you should obtain professional advice. Whilst there are no penalties formalised at this point, although we should expect this to manifest itself after the bedding in process has been completed, and you would want to ensure you do not fall foul of the rules.

One thing is for sure, and that is there is no time for complacency. There may be a couple of years of transition time to keep records digitally, but with other challenges such as Brexit looming, it is well worth preparing for.

In this world, nothing can be said to be certain, except death and taxes. Well, taxes just got a bit more uncertain, unless you act now.

Jake Standing is a senior manager at accountants Kreston Reeves.  He works with fast growing residential developers focusing particularly on online accounting and virtual FD support.  He can be reached by email: jake.standing@krestonreeves.com.  Visit www.krestonreeves.com.