Demystifying Making Tax Digital for Small to Medium Businesses
As a small to medium business owner, ‘Making Tax Digital’ will probably be in the forefront of your mind right now.
Making Tax Digital, or MTD, is a UK government 10 year strategy to move towards a modern, digital tax service fit for the 21st century. Their plan is to shift paper-based tax reporting online, making an end to form filling for millions of small to medium businesses (SME).
But what does it mean for your business and how can you make sure you’re complying to the latest regulations?
Does my SME need MTD?
Small to medium sized businesses are falling under MTD’s scope thanks to income tax and corporation tax changes. Since April 2022 all businesses are now required to file quarterly VAT submissions digitally, it doesn’t matter how much your annual revenue is.
By April 2024 Income Tax for self-employed business owners and landlords must also be made digital. By April 2025 Income Tax for partnerships with individual partners must be made digital and finally, by 2026, HMRC will aim to introduce MTD for Corporation Tax.
It’s a slow transition, but if you aren’t up-to-date on the rules for your business you might be caught out.
How can I comply with MTD?
There are a few MTD rules that SME businesses need to comply with. One is to keep digital records, the next is to submit a summary of information to HMRC once a quarter and lastly, is to file an end of period statement to make any adjustments and a final declaration by 31st January each year.
The aim of the government’s MTD initiative is to make it easier for individuals and businesses to submit tax records and keep on top of their finances.
To do this, businesses must choose HMRC approved comprehensive software to store and upload their tax returns. Comprehensive software stores data from your day-to-day business activities to build an accurate picture of your business’s tax data in real time.
Through compatible software you can send HMRC your tax information digitally, removing any inputting errors.
What happens if I don't comply?
If there is a problem with your return, HMRC have a ‘behaviour based’ system for inaccuracies. You may end up paying a hefty fine, especially if you know the regulations and still don’t comply.
While using a paper trail may be the traditional way of managing your small to medium business’ finances, keeping your information on receipts and invoices opens you up to unintentional tax errors and penalties. By using MTD compatible software you’ll have one format for all your SME’s tax information and your returns will be as accurate as possible.
How do I sign up for MTD?
If you’re taking your first steps towards digitsing your tax you’ll need to register for MTD. To do this make sure you have MTD compliant software.
The government website will give you a handy list of HMRC-approved software to help you find out more.
Once you know which deadline applies to your business you’ll know what plan of action to take. If an accountant runs your finances, speak with them to make sure they have registered. If you handle your tax returns yourself there are a few easy steps you’ll need to take to fully register.
On the HMRC website you’ll need to:
Sign into Government Gateway
Confirm your business type and enter relevant tax references
Add contact details
Submit your application - expect to hear from HMRC within three working days
It’s a good idea to choose a software program that will allow your businesses’ tax returns to be simple and automated, this will save you time and hassle.
Saving you time
Using compatible accounting software will make your role in digitising tax simple and straightforward for your SME. When searching for compatible software on the government website make sure it allows you to submit Returns directly to HMRC without using bridging software.
Then you are all set! Digitising your taxes will give your SME improved efficiency, will streamline your finances and will make it easier to get your tax right.
For small to medium businesses MTD can seem daunting, but by understanding how you can comply and by finding the right compatible software, you’ll be up to date with all government regulations.
