Making Tax Digital is the latest move from the UK government to modernise the tax system, for businesses and individuals
Making Tax Digital is the first step towards a more digital Britain. This new legislation came into effect on 1 April 2019 for those businesses over the VAT threshold. But many are still unaware of what they need to be doing to get ready.
The new legislation from HMRC means businesses over the £85k VAT threshold are now required to submit their tax returns online via MTD-compatible software. Designed to transform the UK tax system, MTD will introduce digital record-keeping and, make the tax system more effective, efficient and easier for taxpayers.
The benefits will be huge, but for contractors and subcontractors in the construction industry who are unsure about what this change means for them, here are five key things you should know about Making Tax Digital:
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Why do I need Making Tax Digital compatible software?
The new rules are here. For construction businesses whose quarterly VAT period started on 1 April 2019, the first deadline for filing returns under Making Tax Digital is 7 August 2019. You will no longer be able to fill in the boxes on the HMRC website. Instead, you need to send VAT information directly from your accounting software to HMRC via an API – similar to how current submissions work for PAYE and CIS.
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Managing CIS tax and Job Costing
For companies working in the construction industry, additional functions such as CIS tax (special tax rules and regulations for construction businesses) and Job costing are often required. Software like can calculate CIS and manage the whole process for both subcontractors and contractors.
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What about corporation and income tax?
While VAT is the first element to be covered by Making Tax Digital, businesses will need to report other taxes through the new system in the future. There’s no set date for when this will occur, but HMRC say it won’t be before MTD for VAT has been shown to work well, and not before April 2021.
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What are the benefits?
Once you’re set-up, Making Tax Digital will streamline how you manage and pay tax. There’ll be less uncertainty in terms of payments, helping you plan and budget more effectively. The idea is that you always know where you stand in terms of tax, and can easily check your information online, in real-time, whenever you need to.
By moving to digital tax, many of the existing paper-based processes will be put to bed, allowing business owners to devote more time and attention to growing and nurturing their business.
Because the information is drawn from your software automatically, errors caused by re-entering or transcribing information manually will be eliminated.
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What if I submit information late?
Penalties will occur for late submissions and will be point-based. You’ll incur points each time you’re late with a submission, per tax and penalties will be incurred once you pass a certain threshold of points. However, points will be reset after a period of good compliance. This means you’ve got until October to get on track.
The next deadline for filing returns under Making Tax Digital is 7 August 2019.
Donna Torres
Director of small business
Xero
https://www.xero.com/uk/resources/making-tax-digital/
