What is Making Tax Digital & Why You Should do it?
Making Tax Digital (MTD) is a new initiative that requires businesses and sole traders to keep their records digitally and submit quarterly returns digitally instead of using the traditional paper-based system. This means businesses have to move towards a digital tax system.
The aim of MTD is to make it easier for taxpayers to comply with their obligations and improve efficiency within HMRC, eliminating errors caused by manual data entry as well as enabling HMRC to match data more accurately between taxpayer systems. It also creates improved tax compliance, making sure that people are paying the right amount of tax on time.
But why should businesses move away from the traditional paper-based system and embrace Making Tax Digital? Here we explain what MTD is and discuss how it could benefit those who choose to use the digital service provided by HMRC.
What is Making Tax Digital?
Making Tax Digital is a digital system for recording business' finances and submitting their quarterly returns online instead of via paper forms and Online Tax Accounts. Businesses that fall under the scope for Making Tax Digital will be required to keep digital records as well as provide these digital records quarterly when filing their self-assessment income tax return through an approved software provider.
Why Make Tax Digital?
There are several benefits associated with choosing Making Tax Digital when dealing with your taxes:
Increased accuracy: MTD makes it easier to ensure that the information you are submitting is correct. You will be able to access better insights into your finances and identify any discrepancies quickly, enabling you to make corrections if necessary.
Reduced administrative burden: With fewer manual processes needed to manage your accounts, you can save time which would have been spent inputting data into multiple systems. This will also mean a reduced risk of errors caused by human error.
Improved efficiency: Digital records enable you to access data quickly and easily, making it easier to manage your finances with greater accuracy and precision.
How To Make Tax Digital?
Making the switch from traditional paper-based methods may seem daunting, but it's a relatively easy process if done correctly. Here are the steps you should take:
Sign up for an HMRC-accredited software provider - Check out the approved software providers listed on the HMRC website to find one that is suitable for your needs. You'll also need to make sure that it's compatible with MTD before signing up.
Make sure all of your records are up to date - Make sure that all of your records are accurate and up to date before you make the switch. This can be done manually or by using an approved software provider.
Link your HMRC account with the software - Once you have chosen a software, you will need to link it with your HMRC account so that data can be exchanged between the two.
Submit your quarterly returns - Once everything is set up, you'll be able to submit your quarterly returns directly through the software provider, meaning you no longer need to worry about paper forms!
Making Tax Digital is an important step towards improving the UK's tax system and making sure that everyone pays their fair share. At Barnstone Accountancy, we are here to help guide you through the process and make sure that Making Tax Digital works for your business. Plus, we can help ensure that your returns are accurate, up to date and submitted on time each quarter. Get in touch today for more information.