When reviewing recent updates connected to MTD, the proposition of the new system may seem like a problematic one. In July 2017, the government announced that it would need to delay implementation by a year. In addition, the initial rollout would be confined to VAT updates only – meaning that businesses would not be required to keep digital tax records or provide quarterly updates on anything other than VAT until 2020.
The fluid nature of MTD – what it means, when it will be implemented, and who it will affect, all of which have been subject to alteration – has given rise to concerns. It’s become harder for businesses to prepare for the changes, and there are additional worries related to a potential increase in workload, as well as a loss of privacy (and, with that, an increased security risk).
Whilst – in some ways – businesses are right to be concerned about the ‘kinks’ in the system, it’s important not to lose sight of the potential benefits of such a change. A digital future should ultimately spell increased efficiency and efficacy for all tax payers.
In this blog, we’ll weigh up the advantages and disadvantages of MTD.
Making Tax Digital: The Pros
More efficient. Dealing with multiple pieces of paper – all of which have to be collated into a single return each year – hugely increases the chances of making mistakes. And these mistakes cost everyone – from the accountants who must ensure compliance, to the businesses who have to spend time going over everything again, taking time out from other projects (thus potentially impacting on business revenue), to HMRC itself. A digital tax account removes this risk. Mistakes are easily detected; business expenses can be entered as they are incurred, making the claiming process much more accurate; and real-time software allows businesses to keep track of how much tax they’ll have to pay as they go along.
Reduced stress. Whereas under the old system you’d probably end up cramming a year’s worth of work into a small timeframe at the end, the new system means that you’ll submit data on a quarterly basis – a much more manageable task.
No surprises. As mentioned above, collating huge amounts of data and then crossing your fingers that you aren’t due to pay a huge bill will be a thing of the past: instead, you’ll be able to keep track as you go along, removing the possibility of any nasty surprises and affording you a greater sense of financial control.
Say goodbye to mountains of paperwork. MTD means that data will flow automatically from various sources to HMRC. You (or your accountant) will need to verify how accurate some of the data is (for example, whether your incomings and outgoings have been recorded correctly), but that’s it: there will be very little to be done in the way of manual processing, potentially saving you huge amounts of time.
Increased opportunity to lower your tax bill. The more accurate a picture you have of your finances, the easier it is to plan effectively. By providing you with the tools you need to keep track of your taxes as you go along, MTD affords you greater opportunity to make savings on your tax bill. To take full advantage of this, we highly recommend employing a tax adviser to advise you on strategy and tax planning.
Making Tax Digital: The Cons
Digital exclusion. Making tax digital necessitates just that: going digital. As part of the changes, you will be required to submit returns online, and to develop a system of digital record-keeping. For a portion of society unused to computer work or cloud-based platforms, this could present a daunting prospect.
Reduced privacy. Whilst making the entire tax process more transparent has its benefits, not everyone will be comfortable with the idea that HMRC will be able to harvest certain data without them being aware of it. However there is an opportunity to review what data is submitted before it is transmitted, which should provide some level of comfort.
More deadlines. Under the current system, VAT returns are submitted on a quarterly basis, but income tax and corporation tax returns are filed less frequently. This is set to change once MTD is fully implemented, meaning that businesses will have quarterly deadlines to contend with on all fronts.
MTD: In Conclusion
Though there have been a few teething problems with the rollout of MTD, the positives of making such a change far outweigh the negatives. A digital tax account might take a bit of getting used to, but it presents a great opportunity to apply a modern, agile approach to financial management. Here at IBISS & Co, we’re ready to help our clients take full advantage of the new system, ensuring that the transition is a smooth and successful one.
Uncertain about MTD and what it could mean for your business? IBISS & Co are here to assist: our expert team of chartered tax advisers and accountants will not only ensure that your business remains compliant within an ever-changing tax landscape, but also will be on hand to advise with tax planning, strategy, and whatever else your company may require. Contact us today for a no-obligation discussion about your needs.