What’s the Deadline for Making Tax Digital? And 4 Other Questions to Help You Prepare : EasyBooks | Small Business Bookkeeping App

Making Tax Digital is a government initiative that's to be rolled out with the idea of improving your business’ financial efficiency and ease. If your business is VAT registered and pulls in an annual income above the threshold (£85,000), you have until 1st April 2019 to make sure your finances are MTD-compliant.

For other businesses who don’t meet these criteria, the earliest we can expect to see it launched for everyone is April 2020. However, if you want to opt in voluntarily, there’s nothing stopping from you doing so.

Here's everything you need to know regarding the deadline for Making Tax Digital. We’ll cover:

Should All Taxes Be Digital in 2019?

In short, no, not all taxes need to be digital in 2019. As we mentioned, HMRC is introducing the new initiative only to businesses that are VAT registered and earn above the £85,000 threshold. If you earn less than this, you needn’t worry about making the shift just yet.

But, this doesn’t mean you can’t switch if you’d like to.

This first phase is simply a pilot scheme to determine how successful the digital taxation plan is going to be. This period gives the government time to patch over any holes and carry out thorough, in-depth testing to scope out any potential problems with the proposed plan.

If everything goes smoothly and the system is successful, the earliest we can expect for the initiative to be released to everybody is April 2020. Other tax components like income and corporation tax have been put on hold until this date too.

Why is Tax Going Digital?

One of the main goals that have fuelled this call for change is that the government is losing too much money from taxation errors that could be easily avoided. In fact, it’s estimated that the figure per year lost has reached £9 billion, which is such a phenomenal waste.

Businesses already do their banking and pay other bills online, so the government feel that it’s about time the taxation process aligned with this. After all, it’s hardly unfamiliar territory, so there’s no reason why it shouldn’t work and be beneficial for businesses. The aim is to make businesses operate in a more efficient way and rule out any avoidable, human error-related mistakes.

How Will it Affect Small Businesses?

As with any fundamental changes, there are bound to be factors introduced that are going to require your business making changes to the way you work. But, that’s not a reason to put you off this revolutionary way of forward-thinking taxation. Explained below are the main ways in which small businesses will be affected by this change.

Initial Software Costs

It’s crucial to know that although HMRC is enforcing these changes, they’re not actually making their own software platform for you to manage your business’ finances from. So, this means either updating your current software that you use or investing into a third-party company who can successfully cope with the new changes being implemented.

The software itself can tend to be pretty expensive, but this is just a one-off cost and won’t be continuously being taken from your expenditure. Once you’ve upgraded or bought the new software, you’ll start to see the benefits straight away and the way your business will operate will become a whole lot smoother.

There are various basic but brilliant apps out there that make your life so much easier and are easily navigable. Featuring a mixture of basic yet brilliant features, these apps aren’t equipped with hundreds of confusing figures and are beneficial and worth the investment. EasyBooks strives to improve the efficiency and effectiveness of your business.

Change the Way You Report

The move to digital is the first step in the government moving away from the traditional ways of collecting tax. Many businesses still operate on a system that works for them, so they’re going to have to adapt when it’s time for their business to convert. HMRC want to enforce quarterly reporting so that they have a better idea of your financial positioning.

If you’re not used to quarterly reporting - a lot of people only report annually - this can require a large switch up in your operating system. You may have worked in a certain way for years, so a change in system might not be as easy as it sounds. It may even make you less productive until you’re in the swing of things.

However, it may also uncover and smoothen out other problems you’ve been trying to solve for a while.

Pay More Frequently

With the digital switch, HMRC is giving you the opportunity to pay at intervals throughout the year as opposed to one lump sum at the end of your financial year. This is particularly beneficial as you can break down your tax bill into more manageable chunks and will help you to have a much stronger verdict of where the business stands financially.

This can allow you to budget more efficiently and take full control over your money.

What are the Benefits? And are there Any Concerns?

Making Tax Digital has plenty of benefits for your business. Some of these are:

Tidy and easily accessible digital records.
Streamlines your working style and habits.
More accurate budgeting due to a better understanding of your financial position.
More affordable and manageable payments.

As with anything new, there are always going to be concerns surrounding how it will affect your business. The main concerns businesses are having are:

It’s a change from the familiar, established system your business has in place.
There are no previous success rates that you can determine before you make the switch.
Learning new software can be difficult and it can easy to make mistakes before you become familiar with it.
Quarterly updates require a big change in the way you work.

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