Making Tax Digital, how it all started
Back in 2015, the government announced that it was going to introduce Making Tax Digital. This was to be part of HMRC’s ambition to become one of the most digitally advanced tax systems in the world.
In true, ‘working to a deadline’ style, hundreds of accounting firms finally took cloud adoption seriously. Finally, they started to move clients onto the likes of Xero and QuickBooksOnline, only months before the 1 April implementation.
However, not all accountants could be persuaded that holding accounting records in the cloud was the future. Instead, they opted to use bridging software from their legacy desktop solutions.
Nothing like taking a shortcut to delay the inevitable!
Global Pandemic Shocks the World
Fast forward to March 2020 and a global pandemic shocks the world and full lockdown swiftly follows. Those who have already embraced the new digital world are feeling a lot more comfortable at this point. Team members picked up their laptops and set up their new office in their dining room, office or bed room and continued as usual.
What about the stubborn and slower moving firms?
Cue mad rush to implement new systems, processes and IT to allow their staff to work from home.
But there are accounting firms who not only still battle on with desktop accounting software, they still use desktop PCs. Going into lockdown with a big bill for bulk buying laptops was probably not an ideal start for what will have inevitably been a tough time to follow.
Amazingly, some firms are still steadfastly dismissing the need for digital transformation and the need for change.
The Roadmap for Making Tax Digital
Lockdown is easing, and HMRC can finally lift their heads up again from frantically rolling out the furlough scheme, VAT amendments and everything else that Rishi Sunak has been throwing at them.
Now, they have released the next stage of the rollout of Making Tax Digital, set out below. This time, it’s not just for businesses, self-assessment will be digital from 2023.
So will the traditional and old school continue in their set ways? Or will we see a widespread move to the cloud for all accounting firms and their clients, as a result?
In conclusion, whatever your thoughts on MTD and whether it’s been properly thought through. It is happening and the next stage is round the corner.
Making Tax Digital for VAT
Who’s affected already?
- VAT-registered businesses with a taxable turnover above the VAT threshold (£85,000)
- If you are below the VAT threshold you can voluntarily join the MTD service now.
But from April 2022, VAT-registered businesses with a taxable turnover below £85,000 will be required to follow MTD rules.
Making Tax Digital for Income Tax
So, who’s affected? The self-employed/landlords with annual business/property income above £10,000. They will need to follow the rules for MTD for Income Tax from their next accounting period starting on or after 6 April 2023.
Some businesses and agents are already keeping digital records and providing updates to HMRC. This is part of a live pilot to test and develop the MTD service for Income Tax.
You can voluntarily use software to keep business records digitally and send Income Tax updates to HMRC instead of filing a Self Assessment tax return.