Making Tax Digital – What you Need to Know
-This article was last updated on 23 September 2021-
Many aspects of our lives have now moved online, from doing our weekly shop to banking and even socialising. The latest area to follow this trend is the way we do our taxes. A new transformation is underway and that is HMRC’s new initiative, Making Tax Digital (MTD). Introduced in the March 2015 budget, this new shift towards a digital process will, according to HMRC, be fully rolled out by 2020.
So Why the Push for MTD?
The aim is to introduce a much easier and efficient way for the taxpayer to deal with their taxes. Just like we manage our online banking, HMRC will give both individuals and businesses access to secure and personalised online accounts. These online accounts will be kept much closer to real-time, meaning you get a much better idea of your tax position throughout the year. This will be invaluable for businesses when budgeting and will also be a welcome change to individuals with multiple or variable incomes where keeping track can be difficult.
One aspect that many will consider to be the biggest improvement will be the end of the dreaded annual tax return. Instead, HMRC will introduce quarterly updates to ensure your information is always current. A lot of the information you fill out in your tax return is actually information that HMRC already holds on you. They will start using this data more efficiently to save on unnecessary data entry for the taxpayer.
Another huge benefit to both HMRC and the taxpayer will be the reduction of errors. Manual data entry is notoriously fraught with errors. Unfortunately these can often lead to an incorrect tax payment. HMRC calculate that £8bn of tax is not collected due to taxpayer carelessness and error. These scenarios rarely end well, usually with either HMRC asking for the correct amount further down the line or with you waiting on a rebate to come through. MTD is hopefully going to improve the tax process with the introduction of digital record keeping, quarterly updates, digital nudges, and online prompts.
How Will it Affect You?
As a result of the shift towards a digital process, paper-based methods for tax submission will no longer be accepted. In their place will be commercially available software and apps that the taxpayer will be required to use. Many companies already employ digital record keeping systems so this move will make integration with the new HMRC online accounts straightforward. The change will also encourage many businesses to adopt further digital systems for areas of their business that might currently be using antiquated processes.
Expense management is one area that remains heavily paper based. Getting ahead of the curve now and beginning to digitalise the process with software like ExpenseIn will help facilitate a smooth transition into HMRC’s digital age. Having a real-time view of your expenses with automated features such as approval flows, policy compliance and our receipt scanning technology will ensure that you always stay up to date with HMRC’s new regulations.
If you want to find out more about the topic, please read our following two blog articles: