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3 | 01 | 19

Making Tax Digital: Explained For Business Owners

5 minute read

Making Tax Digital is a government-launched campaign that aims to make it much simpler for individuals and businesses to keep on top of their taxes. This includes making payments on time, ensuring that they’re paying the right amount of tax and making sure that personal affairs are kept well aligned.

Making Tax Digital is a ground-breaking, fundamental change to the ways in which the taxation process is carried out. Not only will it make it much easier for taxpayers and businesses, but it’ll also make the system more effective, efficient and will significantly lessen the chances of errors taking place.

If you’re not aware of what changes will occur from this system shift, this post will include everything you need to know about making tax digital.

We’ll cover:

  • What is Making Tax Digital?

  • How Can Businesses Ensure a Smooth Transition for Making Tax Digital?

  • What are the Benefits of Making Tax Digital?

  • Are There Any Drawbacks to Making Tax Digital?


What is Making Tax Digital?


Making Tax Digital is a plan aimed at businesses by the government to help them ensure that taxes are being paid correctly and that their bookkeeping is as tidy as possible. One of the main goals behind introducing this new system is to reduce the amount of tax lost per year due to avoidable errors.

Approximately £9 billion is lost per year as a result of easily avoidable tax errors and mistakes, which is obviously quite a substantial amount for the government to be losing out on.

To combat these errors, businesses will now have access to all of their own personal tax data via an online account. Businesses already make payments and carry out transactions online for different areas like banking and paying bills. So, the government decided to bring the taxation process up to the same speed and into familiar territory.

The plan will be introduced in April 2019. However, there’s no need to panic as the first stage of the plan is only relevant to businesses who earn over the VAT annual threshold (£85,000). Businesses that aren’t at this stage of earning won’t be introduced to this system as of yet, but they can opt in voluntarily if they’d like to.

The government is using this period of rolling the new system out to those above the VAT threshold as a pilot scheme to see if it’s successful or not. They plan to widen the brackets and introduce it to everybody by April 2020 at the very earliest. This allows the chance of any holes in the system to be fixed and for full testing to occur.


How Can Businesses Ensure a Smooth Transition for Making Tax Digital?


Making Tax Digital is obviously going to take effect on your business and the way you operate, so there are various ways and changes you can adapt to so the transition is a smooth one. These are:


1. Invest in Top-Quality Accounting Packaging

After working in a set way for a long time or doing business under new legislation you’re not used to, your accounting and taxes can be tricky. Human error can land you in deep water if you miss a payment or don’t pay enough.


Top-quality accounting packaging that has the features you need can help you track your records much more efficiently and reduce the chance of any errors occurring.


2. Change Your Reporting Schedule

Along with the introduction of the new digital shift, HMRC has introduced a requirement that they need to be updated on your financial state on a more frequent, quarterly basis. This means that you’re going to have to adapt your own reporting schedule - if you don’t do that already.


3. Change the Way You Pay

Apart from the obvious change from manual to digital, the way you pay is also changing with regards to frequency. Making Tax Digital allows you to pay on a scheme that suits your business, which will let you see a more realistic position of your business’ finances, rather than paying in full annually at the end of your financial year.


The frequency of your pay is completely voluntary so this flexibility allows you to choose a suitable way for your business.


What are the Benefits of Making Tax Digital?


Making Tax Digital will unlock plenty of doors for your business and perhaps iron out some underlying issues that you’ve been trying to tame for a while.


The benefits are:

  • Improved organisation. Having to tidy up your digital records may lead to a greater level of overall organisation.

  • Promotes efficient working style. Updating frequently and keeping tabs on everything promotes good habits that may filter down through your business.

  • A better understanding of financial and tax position. This will allow you to forecast a more accurate budget.

  • More manageable payments. The big annual tax chunk won’t look as steep or hit your business as hard if spread into more manageable chunks.


Are There Any Drawbacks of Making Tax Digital?


As with any new introduction to a change in business operation, there’s bound to be concerns surrounding the plan. Some of the main worries are:

  • People don’t like change. If your current system is working, it’s likely that you’re not going to want to move away from it.

  • There’s no proven track record. This is a completely new platform, so businesses may not want to have all their finances depending on it.

  • New software mistakes. Learning new software can be tricky and it may be easy to make mistakes that could be costly.

  • Daunting quarterly updates. Businesses may not be keen on quarterly updates as it requires a lot more work and they could be focusing their interests elsewhere.


Find Out More About Making Tax Digital


We understand that making tax digital may sound a little daunting at first, but you needn’t worry. We’ve put together a free summary sheet so that you’re completely clued up when the introduction finally affects your business at whatever stage.


Download it for free below and find out everything you need to know and more.

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