As the years go by, government across the world are going digital in order to deliver services more efficiently. This goes for all areas of our lives, even how we pay our taxes. This year, HMRC are implementing Making Tax Digital, an initiative that intends to make all tax processes fully automated in the next couple of years. This should help businesses to regulate their tax more easily, should ensure less issues with tax avoidance and evasion, and streamline the process for businesses, accountants and HMRC themselves.

What is Making Tax Digital?

2015’s Budget set out governmental plans for a new, transformed tax system, including plans for a completely digital tax system. In December 2015, the Making Tax Digital roadmap was published, setting out plans to modernise the tax system in order to make it simpler and more efficient.

Originally, the proposals looked to phase in the implementation of digital record keeping and quarterly updating by businesses, self employed people and landlords between the tax years 2018/19 and 2020/21. After further discussion and review, in July 2017 it was decided to phase this in slower to give the system a chance to settle in, and any problems to be dealt with before the system was made mandatory for everyone.

By 1st April 2019, HMRC intend for all VAT-registered businesses earning over the VAT threshold (currently £85,000) to be complying with the Making Tax Digital legislation. Businesses will be required to move all of their accounts and tax information over to a digital service, which means that, for the most part, their tax will be worked out and paid automatically. This helps to avoid human error when it comes to paying taxes, as well as tackling tax evasion. Making Tax Digital is only currently applicable for VAT reporting, whilst corporation tax is planned to be implemented once it has been demonstrated that the technology and infrastructure is up to the task.

Who is exempt from making tax digital?

Whilst the intent was for all businesses and individuals to be logging and paying their tax by 2020, the government delayed this ambitious target following lobbying from business and trade groups. For those that currently are, or will be by April 2019, affected by the MTD legislations, they must submit their information digitally. However, there are some exceptions to the rule including:

  • Those who are digitally excluded, this may include people that cannot use computers or go online for religious reasons, people with disabilities, those whose age prevents them for using a computer easily, or those who live remotely and cannot get online easily.
  • Those who have a gross annual turnover of less that £10,000. This may include landlords, agency workers and contractors.

Unincorporated businesses with turnover of between £10,000 and the £85,000 VAT threshold will eventually be required to make their tax digital as well, and these businesses have the opportunity to switch to the digital system voluntarily as soon as they would like.

MTD benefits businesses

Although this process will eventually be a legal requirement, many businesses are moving over to the digital system already. Making Tax Digital isn’t only useful for the government to keep an eye on tax matters, but it also streamlines financial processes within businesses as well. Making Tax Digital will:

  • Help businesses to stay on top of record keeping, putting all of their accounts into sophisticated software that will help to work out tax and give a simpler representation of where the company stands financially.
  • Keep businesses abreast of what they owe and when, ensuring there is never a panic to get their accounts in order when it is time to return their tax return.
  • Give companies access to all of their tax information online in one place.
  • Help businesses to work collaboratively online with an agent without having to share files. It is easy to sign onto the accounts portal and view the same document at the same time.
  • Help businesses to plan and budget more effectively.

How to prepare for MTD

If you believe that you belong in the group which needs to have all of their taxes digital by April, it makes sense for you to start making arrangements sooner rather than later. This will allow you to be more accurate and take your time, instead of having to rush as the deadline approaches. Before you begin:

Decide if you need to move to digital

Although it is mandatory for those with a revenue of more than £85k, as mentioned above it can be a good idea for smaller businesses to voluntarily move over sooner rather than later. For a start it makes the whole process of working out and paying tax easier, and if you wait until everyone needs to do it you might find it harder to get help from HMRC if you run into problems. If you want to find out whether your business can move over to MTD, you can call HMRC or visit their website.

Register for a MTD webinar

HMRC are providing a series of webinars to help businesses to get ready for the deadline. The webinars are an hour long and provide information relating to

  • Compatible software
  • Making Tax Digital basics for digital record keeping
  • How to sign up for Making Tax Digital
  • How to submit your VAT returns

You can find these webinars and sign up for the next one at

Where are we now?

Although the system is being launched in April of this year, it is very much a ‘soft landing’, giving companies time to get used to it. HMRC is not planning to impose penalties straight away and companies will not be fined if they don’t comply in time as long as they can be seen to be in progress. A ‘cut and paste; approach to adding existing accounts to software will be accepted until April 2020, meaning that your business has more than enough time to get used to using the software.

Further information and help

The digitisation of business accounts for VAT and tax reporting purposes was always an inevitability. While it strikes fear into many, most also realise that it will help them run their businesses more efficiently in the future. If you have not started your preparations, then it is definitely a good idea to start prioritising it now.

Speak to an advisor at Accounting Gem for more information. From friendly advice to full spectrum accountancy services, we are here to help. Please call on on 01473 744 700 or via email at