MTD: What is the long-term goal, and how can you make the most of it?
For many businesses and organisations that are about to fall under the jurisdiction of the MTD reforms, it can seem like simply yet another task on a long list of things to do. However, these reforms have a specific and worthwhile purpose.
Not only are they intended to help save the Exchequer money, but they are also supposed to provide VAT – and later all – taxpayers with a more streamlined and efficient taxation system. This article will explain what the long-term goals of Her Majesty’s Revenue and Customs (HMRC) are in relation to its reform plans – and how you as a taxpayer can ensure that you get the most out of the changes.
Goals: efficiency and savings
At the moment, HMRC is losing a lot of money as a result of simple errors on the part of those who fill out tax returns. When VAT taxpayers fill out their returns, it’s common for errors to spring up here and there unintentionally. Spreadsheets aren’t always sophisticated enough to spot when something doesn’t quite add up, for example, while pen and paper tax return methods run the risk of miscalculations, errors and more.
The end result is that lots of cash gets lost. It’s believed that HMRC currently loses £4bn per year in this way when the losses are accumulated in full – meaning that something has to change. By instituting these reforms, VAT taxpayers turning over more than the threshold of £85,000 will now have to use designated software that integrates properly with the HMRC system – meaning that the risk of problems emerging will be minimised.
However, HMRC is looking to go further. The Making Tax Digital reforms are only going to affect VAT taxpayers at the moment, but one of its long-term goals is for all taxpayers to come under the system at some stage. Income taxpayers, for example, may have to start using designated and integrated software packages at an unspecified date from 2020 onwards, while the same goes for corporation taxpayers. In sum, everyone is going to be affected by Making Tax Digital at some stage or another – so it makes sense to get ahead of the curve now.
Making the most of it
While it’s inevitable that some businesses will find the Making Tax Digital reforms difficult at first, it isn’t supposed to pose problems. In fact, it’s supposed to bring benefits. As well as the peace of mind of regulatory compliance, it’s likely that those who come under the Making Tax Digital bracket in the future will enjoy other benefits.
Holistic data overviews will mean that all relevant stakeholders will be able to see how much the firm’s VAT liability is at a glance, for example, while the semi-automated functions of many accountancy packages mean that the process of filling out the tax return will be completed much more quickly – allowing finance team members to do other things.
Overall, Making Tax Digital is intended to minimise the risk of errors in the VAT tax system and increase the chances of HMRC keeping most of the cash that is owed rather than losing significant amounts through human error. However, there are other major benefits. Making Tax Digital-compliant software can cut down on your time costs, for example, while it can also mean better access to data within your firm.