Making tax digital: going paperless
13th July 2017
The government’s Making Tax Digital (MTD) initiative is fast approaching with many businesses and individuals still unsure or underprepared for the new digital accounting scheme.
1 of the reoccurring questions is how will the transition from paper to digital accounts affect those reporting income and expenses over the next financial year?
We take a look at what MTD and going paperless in the digital age means.
What is Making Tax Digital?
The term ‘Making Tax Digital’ is somewhat confusing. What does it really mean?
In simple terms, businesses, self-employed people and landlords will be required to use digital accounting software to submit their records to HMRC on a quarterly basis.
The timetable for MTD has been ammended. The process will roll out as follows:
- April 2019 - businesses with a turnover above the VAT threshold (£85,000) and for VAT purposes only
- businesses will not need to keep digital records, or update HMRC quarterly for other taxes until 2020.
MTD will become available on a voluntary basis for the smallest businesses and for other taxes.
What does this mean for individuals/landlords?
Individuals completing their self-assessed tax return can set up a personal tax account to collate all their information in a single place.
The account can be accessed from a digital device (such as their computer or smartphone) to update their information and see how much tax needs to be paid.
Particularly for property businesses and landlords, cash basis accounting would become the default method for calculating rental profits and losses.
This will mean for our landlord clients they would need to use cash basis to declare income they have received from a property.
The cash basis threshold has been now been extended to £150,000.
MTD aims to simplify the process of submitting taxes and centralise records online. This means the end of filling paper forms and posting them to HMRC.
Individuals are required to submit their financial information in digital format.
HMRC is currently working with developers to arrange free software for those preparing for MTD.
However, costly alternatives such as cloud accounting software can instantly store digital records.
Receipts and invoices can be scanned and backed up – collating the information you need to complete your tax return. Data can then be plugged into ready-made templates to submit online on a quarterly basis.