Making Tax Digital : What’s coming our way!
One of the most intellectual persons the world has ever had, Albert Einstein said, “The hardest thing in the world to understand is the income tax.” Tax payments have almost been like rocket science to most taxpayers.
Even Former U.S. Secretary of Defense Donald Rumsfeld gets confused about his taxes! After he filed his 2013 tax return, Rumsfeld still did not understand what he owed. He, thus, wrote a letter to IRS saying he believes at someday the tax codes would become simpler for every common man to understand it. Imagine an ordinary man who is trying to make ends meet getting to learn such a complicated tax system to file his returns. How difficult should this process be for him! But the unknown story is that even the tax regulatory bodies find it extremely challenging to keep a record of tax payments.
HMRC of UK, one of the most significant regulators, faced significant challenges in maintaining tax records, tracking payments and more. VAT evasions in the UK became very common, and HMRC had no means to find what accounted to their big loss. Their primary objective through this initiative is making tax payments easier for individuals and businesses to get their tax right and keep on top of their affairs.
HMRC envisioned in becoming one of the most digitally advanced tax administrations in the world. Making Tax Digital (MTD) is an initiative by HMRC in making the tax system more efficient, more effective and simpler. This way, HMRC can track, keep records and make payments digital to ensure complete transparency for customers. HMRC brings to every customer (individuals, corporates) a digital account that can contain all information about the customer which can be checked and altered at any time.
HMRC has announced that on April 2019 it would exercise the first phase of MTD which would require the VAT registered businesses having turn over more than the VAT registration threshold of £85,000 to file for MTD. Around 3.5% of the VAT registered companies, although, have got the mandate deferred to October 2019. This way another major problem concerning HMRC could be solved.
Would this address all the concerns regarding tax governance is a question that can be answered only on the due course, but this would make the entire process less complicated. It just requires businesses that already have digital records to use a bridging solution to file tax returns. Small companies that only hold manual records would need to transition to digital records. Large and small businesses that contain information in spreadsheets may still keep them but to be compliant with MTD, they must link the reportable information with MTD compliant bridging software. Making Tax Digital would thus help both the regulator and the customer over the long term.
There have been many doubts, calls for amendment and many controversies around MTD implementation but on the other hand, HMRC is providing all necessary help possible to make this transition more accessible for everyone. Customers need not provide information that HMRC already knows or that can be retrieved from other sources. Over time, customers will not even require to file ‘one tax at the end of the year’ as MTD will be done quarterly, and all the details would be furnished in the customer’s digital account rather than in different separate stand-alone systems.
Most people file VAT returns using an online service provided by HMRC which will now be withdrawn to smooth the transition. HMRC has listed a number of software providers in its website who could help VAT registered businesses in complying with MTD. It has also provided adequate time to make the records digital and to use a software provider to file their VAT return. Thus businesses can move to a more effective tax system.
DataTracks is one of the first set of companies listed in HMRC website for MTD filing and can ensure to make this a very efficient process for you. Even if you are using spreadsheets to maintain VAT related data, you can use our solution that automates the data flow from the spreadsheet to HMRC’s portal.