Making Tax Digital: 7 common myths busted
Confused about Making Tax Digital (MTD)? Don’t worry, here’s a quick guide that will shed some light on the biggest change to tax in the UK for a generation and clear up some of the myths that you might have heard.
Myth 1. Making Tax Digital has been postponed
The roll-out of MTD is already well underway and the first major phase of the initiative, MTD for VAT, is set to begin on 1st April this year. Under MTD for VAT, businesses with a turnover above the VAT threshold will have to keep digital records and submit quarterly VAT returns using MTD-compatible software.
HMRC has also said it will look to widen the scope of Making Tax Digital to include Income Tax and Corporation Tax from 2020.
Myth 2. Making Tax Digital is hugely unpopular
A change as big as Making Tax Digital is bound to bring out strong opinions on all sides; however, the evidence points to people feeling positive about the prospect of a new digital tax system. In FreeAgent’s 2017 survey of small business owners who have already digitised their bookkeeping, nearly half of the respondents said they felt positively about MTD, compared with just 11% who felt negatively.
Myth 3. A digital tax system will be far too technical for most people
Millions of businesses already manage tax online with 99% of VAT returns, 98% of Corporation Tax returns and 86% of Self Assessment returns currently submitted online.
Even if you’re one of the 14% who don’t submit their Self Assessment tax returns online, HMRC has promised prompts, advice and support throughout that will make navigating your digital tax account as simple as possible. Web chat is already available via your digital tax account so you can chat to HMRC at a time that suits you and hopefully never have to listen to that wretched hold music on deadline day ever again!
Myth 4. My spreadsheet is just as good as any digital tax software
Spreadsheets are great for some tasks, but have you ever tried accounting software and compared the two? You’ll soon find that a powerful accounting system goes far beyond anything that even the most complex spreadsheet can manage.
Your spreadsheet could also be feeding you false information. According to research by MarketWatch, 88% of spreadsheets contain errors and there are plenty of spreadsheet horror stories from big companies that will be likely to cause concern. With the accuracy of financial figures the cornerstone of any good business plan, do you really want to take any risks?
Myth 5. HMRC will provide free software that I can use
HMRC has confirmed that it will not be providing software directly. This really means that the onus is on you to find a digital accounting solution that works for your business. With little time left before you need to transition to digital record keeping for MTD for VAT, and just over a year for Income Tax and Corporation Tax, now is the time to start looking.
Myth 6. Making Tax Digital means I’ll need to keep extra records
As the goal of Making Tax Digital is to simplify the UK’s tax system for everyone involved, businesses will not need to keep any more records than they do already. HMRC has confirmed this, adding that the digitisation of business records will contribute to reduce business burdens by £400m. With this goal in mind, forcing businesses to keep extra records would be counterproductive.
Myth 7. Digital record keeping is going to be a huge hassle
In FreeAgent’s 2017 survey of small business owners, customers reported that switching to FreeAgent’s accounting software saved them a day a month on average, compared to their previous bookkeeping method. Nine out of ten of their customers also said using FreeAgent makes them feel more relaxed about managing their business finances.
It might take a little bit of time to get used to new software but when you do you’ll reap the rewards. Being able to see your tax liabilities build up over time prevents any nasty last-minute surprises, while many of the other time-consuming parts of daily business admin, such as chasing unpaid invoices, are automated. FreeAgent also currently enables sole traders and limited company directors to fill and file their Self Assessment tax return directly to HMRC from the software.
Looking to get sorted for Making Tax Digital? FreeAgent’s MTD-compatible accounting software is free for all NatWest business banking customers.