Back in 2015, then Chancellor George Osbourne said in his Budget that he planned to “bring tax into the digital age”, laying the groundwork for Making Tax Digital.

Making Tax Digital is a big change – you’ll have your own digital tax account in the near future with HMRC that you’ll keep updated just as much as your online bookkeeping software and business banking.

What are Making Digital Tax accounts?

Digital tax accounts will eventually come in two different forms – personal and business accounts. “Eventually” is the operative word in that sentence as you will see shortly.

Personal accounts will cover all the normal taxes that you, as an individual, pay currently. These can be income tax, national insurance, property-related taxes, and so on.

Business accounts will run in a similar way, offering access to all taxes related to business including corporation tax, employee national insurance contributions, VAT, and so on.

These accounts will act much in the same way as a bank account.

You will be able to log in at any time and see how much tax you owe and if any reimbursements are owed to you. It will link to your bank account and your online bookkeeping system so that your records are constantly kept to up to date.

The thinking behind this system is that less errors will occur because everyone will be able to access their account where everything is easily laid out for them in such a way that tax is understandable to the layperson.

How will these accounts be used to begin with?

Making Tax Digital is going to start with VAT-registered businesses using the new system to manage their VAT obligations.

This is just to start off with though. Eventually, HMRC hopes that every type of tax to be available to pay online.

What does Making Tax Digital mean?

Making Tax Digital will require users to update their finances online and file a tax return every quarter. 10 months after year end, there’ll be a reckoning annual account to correct the quarterly returns. That means five tax returns a year instead of one.

Many people have raised questions about how difficult this will make running a business as this will require more time filing taxes. This is time that many business owners argue could be better spent on other tasks.

Making Tax Digital will also allow for every user, both businesses and individuals, to manage their taxes at a time that suits them, rather than simply whenever there is a person available to assist them at HMRC.

HMRC believes that £9.5 billion is being lost annually because of tax miscalculations and errors and they hope this new simplified system will recoup some or all of that revenue.

Who will be required to use Making Tax Digital? 

Starting in April 2019, all businesses who turnover more than the VAT threshold will be required to use the service. The VAT taxable threshold currently stands at an annual turnover – or projected turnover – of over £85,000 within a 12-month period. At the moment, only VAT will be handled by the system – no other taxes.

Over the following years, more and more taxes will be managed by the system by more and more users.

However these plans have already been pushed back several times, so there is some scepticism as to whether we will see the new plan fully implemented by the time they promised.

Making Tax Digital with Burton Beavan

This is undoubtedly the biggest change to taxation since the introduction of Self Assessment. As a result of this, Burton Beavan is working very hard to keep up to date with these changes in order to support our clients when it becomes the nationwide standard.

If you want to find out how Making Tax Digital will affect you, speak to the Burton Beavan team today on 01606 333 900 or email hello@burtonbeavan.co.uk.