What Is Making Tax Digital? A Guide for Small Businesses and the Self-Employed

Making Tax Digital (MTD) is an essential initiative from the government to lead tax administrations digitally and online. The main aim of MTD software is to ensure convenient tax filing for individuals as well as business owners in the United Kingdom. MTD VAT is believed to be one of the most effective and efficient solutions for filing tax returns digitally. 

Many businesses are using spreadsheets in combination with bridging software. Several businesses have already used such impressive tools for handling their VAT returns. However, many others prefer considering automated accounting software to transfer all financial details automatically to the HMRC system. 

These compatible software tools make use of data from day-to-day business activities to develop an adequate picture of tax returns on a real-time basis. It can also highlight errors in the system while offering immediate prompts for the relevant information that may be otherwise ignored. As soon as your software has compiled all the relevant information, your accountant or even you can submit the details directly to the HMRC portal. 

Users reveal that MTD VAT software ensures several benefits, including increased productivity levels, fewer errors and better financial planning. 

MTD for VAT registered businesses

The first most stage of MTD became effective from 1st April 2019, and it required all VAT registered businesses within the United Kingdom to file VAT returns using advanced MTD compliant software. These regulations are applicable to all businesses with an annual turnover greater than the pre-defined VAT threshold. Moreover, in order to file VAT returns online and digitally, business owners are advised to store all financial records using spreadsheets or accounting software. Some of the existing businesses also prefer using MTD VAT bridging software to lead their operations. 

The business owners and individuals in the UK are known to have a unique tax account that they can use to track all relevant accounting details and file returns with the HMRC portal. By the month of March 2020, almost 1.4 million businesses got registered with MTD VAT, and more than 4 million VAT returns were filed digitally. This revolution in the accounting sector made VAT filing much convenient for businesses and individuals. The modern software tools allow easy integration of tax software and accounting platform so that tax returns can be filed conveniently without any manual errors. 

MTD deadlines and benefits

The first phase of MTD VAT is currently active, and it is applicable to businesses with a taxable turnover of more than 85,000 euros. The next phase is expected to start from April 2022, and it may be applicable to all the VAT registered businesses below the annual taxable turnover of 85000 euros. The third phase of MTD VAT will be implemented in the year 2023, and it is applicable to self-employed businesses as well.

The regulation is expected to do future-proofing of the company while ensuring increased efficiency in the process. It can help business owners to avoid errors and mistakes in handling accounting information while making the tax filing process more eco-friendly.