All You Need To Know About Making Tax Digital

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All UK businesses with an annual taxable turnover above €85,000 were required to keep their VAT records digitally and file VAT returns through a software from the April 1st of 2019.

This was introduced in the first part of HMRC’s Making Tax Digital scheme—a plan to strengthen UK’s taxation transparency by digitalizing the entire taxation system. Although, this part is solely focused on digitalizing VAT, further plans will be implemented in accordance to the goal of making tax completely digital.

Greater transparency and fewer instances of tax corruption are obvious motivations behind this scheme. To ensure tax regulations and data is organized more efficiently, the government has found the perfect partner: Technology.

However, introducing widespread changes amid the comfort of older ways is not easy. People do not like change. This is why the Making Tax digital scheme is being gradually implemented. And this is also probably why you are on this page right now.

If your business meets the taxable turnover threshold, you need to comply with HMRC’s MTD policy and file your VAT through an HMRC compliant software—a software that meets HMRC’s tax filing regulations and is digitally linked to HMRC, allowing you to directly submit VAT through HMRC.

Accounting softwares has simplified this process. You merely need to follow a few simple steps. (Check out how to file VAT here)

Not all business with taxable turnover above £85,000 are required to file tax digitally. Like most policies, there are exemptions to this one too.

Businesses exempted from digital VAT Filing (despite having taxable turnover above £85,000)

  • Companies using VAT GIANT service
  • NHS
  • Government department
  • Royal household

GIANT is short for government information and national health trust. If you’re organization is among the ones mentioned above, you aren’t required to file tax digitally

A small minority of businesses with complex requirements with above the taxable threshold were also given leeway on the April 1st date.

Examples:

  • VAT divisions
  • VAT groups
  • Local authorities
  • Public corporations
  • Traders based overseas
  • Those required to make payments on account and annual accounting scheme.

If your business belongs to the list above, you had till November 19th to start making changes.

Filing VAT through software if taxable turnover is below the threshold

Even if your business’s annual taxable turnover is below, you can still file VAT though a software. You might wonder what benefit doing this voluntarily offers. It is simple.

Filing VAT through a software not only automatically organizes all your VAT records, but also lets you directly file VAT to HMRC. This means the entire process of making intense calculations is taken care of.

A software calculates VAT for each transaction you make. So, when the time comes to filing VAT, it is merely a case of adding up all you owe.

You also don’t have to deal with the fear of missing VAT deadlines. The software keeps you updated.

Choosing to file VAT without compulsion will give you a head start since HMRC intends to digitalize the entire taxation system. This means sooner or later you’ll have to file VAT through a software.

Shifting from Spreadsheets to a Software

If you are using spreadsheets to record taxes, it might seem daunting to make the transition towards a software. But a bridging software like Accounting softwares lets you import information from spreadsheets or other applications and file VAT to HMRC. This means physically retyping information into the MTD-compatible software is won’t be necessary. The software will automatically detect your records and send the information to HMRC.

Making Tax Digital is swiftly revamping the landscape for filing taxes and every business needs to take heed.

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