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23 | 01 | 19

What is Digital Tax?

4 minute read

With the Making Tax Digital deadline fast approaching, we’re often asked “what is digital tax?”. Basically, all tax returns will be replaced by digital tax accounts for businesses and individuals from the 1st of April 2019. To make sure you’re prepared, we’ve put together this blog that answers all of the questions you might have.


Making Tax Digital 101

Just click on one of the questions below to be taken directly to the answer.


What is Making Tax Digital?

Introduced by the government, Making Tax Digital (MTD) aims to make it easier for people and businesses to keep on top of their tax returns. The switch to a digital-only system should be more effective, efficient and reduce errors that lead to taxpayers having to pay more.


How Soon Do I Need to Switch?

From the 1st of April 2019, VAT records need to be kept and submitted digitally.


The government hopes that by 2020 at the earliest, the scheme will enable all UK businesses to access their tax details via online accounts. Businesses can opt in at any time between now and then.


What is a Digital Record?

You’ll be switching from paper-based returns to digital ones, so you’ll need to keep electronic records. These could include a digital version of a paper record, like a photo or PDF from something that’s been scanned into a computer.

It can also be an entry into a software program or app that’s tracking your tax information. To be usable, the record needs to include the date, amount and the category of each business transaction.


What is a Digital Tax Account?

A digital tax account holds a taxpayer’s information in one easy-to-access place. They’ll be replacing tax returns for millions of UK businesses and individuals and act just like a normal bank account. Once set up, you’ll be able to log in and look at tax information in real-time, update data, choose payment details and register for new services.


How Will it Help My Business?

MTD can turn tax returns from a confusing and time-consuming task into a quick and stress-free experience for your small business. There’s less paperwork for you to keep track of and you’ll find bookkeeping so much easier when working digitally.

Digital tax accounts are effective and efficient, giving you more time to focus on more important areas of your business. Plus, because you can view tax information in real-time, you’ll be able to make informed business decisions that can lead to growth.


What About VAT?

From the 1st of April 2019, UK businesses that are over the £85,000 threshold need to comply with MTD when submitting VAT returns. So, the April-June VAT return will be the first one that must meet the MTD’s rules.

Many businesses already follow the quarterly reporting system, so they’ll experience no real change when MTD comes into effect in April 2019. If your small business isn’t part of that group, then you’ll need to make the change.


What About Income Tax?

By April 2020, the government plans for all income tax returns to be carried out digitally. This will affect everyone because the entire income tax system will be digitised. There will be four submissions, one per quarter, as well as two extra ones that confirm the annual figures and all income for the year.

This will eventually replace the annual tax return process, although the only businesses that need to worry about quarterly reporting are those that pass the threshold of £85,000.


What About Corporation Tax?

Like income tax, the government aims for MTD to include corporation tax by April 2020. We’re still waiting for the government to release more details about how corporation tax will be affected by MTD and whether or not businesses will need to submit returns quarterly, like with VAT.


How Should I Be Preparing?

Switching to MTD doesn’t need to be stressful or overly complicated. To make things as straightforward as possible, then it’s worth looking into different apps and software that can make your life easy.

Because all records will need to be submitted electronically, it’s important to have a system in place to keep track of everything that carries out all of the business bookkeeping you’ll need. Look for apps that can manage different account types, VAT schemes, statements, invoices, tax reports and product reports.


Download Our Guide to Making Tax Digital

We understand that MTD can be a little overwhelming, especially if you’re no expert when it comes to tax and financial reporting. To make things a little easier to follow, make sure to download our free guide to MTD.

It’s packed with simple explanations of what it actually is, why it’s being introduced and what the penalties are for not complying with its rules. Get your hands on a free copy of the guide now by clicking on the link below.


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