You may be wondering what MTD for VAT is and how it will affect your business. It is the process of bringing the tax system into the digital age.
Why is MTD being introduced?
The Government wants to make accounting data more accessible to taxpayers. Companies need to transfer paper receipts as ...
The Government wants to make accounting data more accessible to taxpayers. Companies need to transfer paper receipts as soon as possible to accounting software.
Different explanations have been given in different forums, however, the most likely driver for MTD is to recover more tax – the so-called “Tax gap”. HMRC also explain that having digital records will make businesses more efficient and they are probably right. However, that is likely to be at the cost of shorter-term problems as anyone who has implemented a new system will testify.
The introduction of Making Tax Digital will reduce paper and increase the efficiency of businesses by streamlining the recording and documentation processes. This will enable companies to make real-time decisions, budget their tax liabilities and communicate with HMRC directly. Using digital records will reduce the likelihood of human error, which is costly. Businesses that want to save time will likely welcome the opportunity to communicate directly with the government. Using this new tool will also help businesses to avoid the potential risks of human error, such as a mistake on a tax return.
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What does this mean for small businesses?
Essentially, it means that tax administration will become paperless. In other words, small businesses and the self-employed will be going paperless and digital. It will improve the efficiency of HMRC and make life easier for business owners. However, despite all the positive effects of the change, it is still difficult to imagine how this new system can help you. So, how do you get ready for this transition?
As the government pushes for tax administration to become fully digital, the Making Tax Digital initiative is a big step in the right direction. HMRC has outlined a vision for an increasingly efficient tax system that uses compatible software to keep track of all transactions. With the introduction of compatible software, MTD can make things easier for both businesses and taxpayers. It is also a big step towards making HMRC more digital.
The introduction of MTD has many benefits for businesses. Businesses and organisations with property income will need to have digital accounting records in order to be compliant. If they continue to rely on paper records, this will no longer meet tax legislation requirements. The government is aiming to encourage the widespread adoption of computer software to help businesses comply with the new requirements. However, getting businesses to adopt new methods is difficult but not impossible. And with so many benefits to the taxpayer, it is important that businesses get the right MTD software.
Several other countries have already successfully introduced systems that go further than MTD. For instance, Italy, Greece, Spain and Hungary all require invoices to be sent electronically to them at the same time that they are raised and there are similar setups in Turkey and Latin America.
It is therefore hard to argue, as some do, that MTD will never work.
Additional useful information
If you want to know how to calculate MTD? Click Here