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A Business Owner's Guide to Making Tax Digital

Tax | 5 mins read | Last updated on 27 July, 2018

You may have seen Making Tax Digital, or MTD, showing up in the news lately, and for good reason — it’s set to bring about major changes to the United Kingdom’s tax system. While some people are concerned, you don’t have to worry. We’re going to go over the basics of MTD, its benefits, and how it’s going to change the system’s status quo.

Guide to Making Tax Digital for Businesses - Zoho Books

So, what exactly is Making Tax Digital and why was it introduced?

MTD is a government initiative to reform and modernize the UK tax system by 2020, and to help make tax reporting easier for businesses. Starting in April 2019, businesses with a turnover above the VAT threshold are required to maintain a digital record that updates automatically and stores all pertinent company data in one place. This online system is intended to increase transparency and eliminate the errors associated with paper tax filing. 

As a part of this initiative, all businesses will have access to a digital tax account. From here, they will submit tax information to HMRC on a quarterly basis. It is a step towards making HMRC the most technologically advanced tax administration in the world, and also marks the end of annual tax filing.

How will MTD change the way things are done?

Making Tax Digital aims to restructure the entire tax system in the UK, meaning businesses will have to follow a set of standard record maintenance practices and file quarterly reports. Preparations have already begun, with businesses moving online to increase efficiency and accuracy.  

Implementation

HMRC has published a timeline for implementation:

What are the benefits of MTD?

One of the main advantages of Making Tax Digital is that it removes the errors and confusion that come along with paper tax filing. But there are more benefits to MTD than meet the eye.

What are some of the challenges with the new system?

While MTD comes with a host of benefits, there are some issues to keep in mind.

The future of accounting is constantly evolving with new technologies, and MTD is speeding up the process. Though it brings about a drastic change in the way the tax system works, the benefits of MTD outweigh the minor inconveniences that may occur along the way. 

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