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What does MTD mean?

21st Aug 2018
Brought to you by
capium

Capium is cloud based accounting and practice software.

Save content
Have you found this content useful? Use the button above to save it to your profile.

MTD stands for Making Tax Digital. Here’s what that actually means for UK businesses – and what you need to do to prepare for upcoming changes.

MTD essentially means what it says on the tin – instead of filing annual tax returns, businesses will have a digital tax account they update regularly. The Government’s aim is to make it easier for you to get taxes right first time, while making the whole tax system more effective, efficient and intuitive.

The four foundations of MTD

As part of the MTD initiative, the Government has set out 4 pillars. They are:

  1. Better use of information – Businesses and accountants will have access to digital tax accounts showing everything HMRC holds about you. This makes it easier to check information and means you spend less time calling and writing to HMRC

  2. Tax in real time – You don’t have to wait until the end of the year to know what your tax liability will be. Information will be processed more regularly, so you can plan more effectively and won’t have to deal with repayments or top-up tax bills
  3. A single financial account – Your digital tax account gives you a one-stop shop for accessing all liabilities and entitlements, reducing the time and frustration associated with analysing your financial position
  4. Interacting digitally with customers – The media has been awash with reports of long wait times for reaching HMRC. MTD will allow businesses and their accountants to get and give information online, reducing pressure on HMRC’s customer service and saving everyone time and stress

What MTD means in practice

The first big milestone is 1 April 2019, when MTD goes live for VAT. If you haven’t already started thinking about preparation, now is the time – it’s best to have a quarter or 2 of experimentation so you get it right from April.

Your accountant will continue to manage tax return and accounts preparation on your behalf, but the process will change because you’ll need to provide information more frequently. This means businesses need to change their mindset, thinking about providing financial data in a continual stream digitally rather compiling it for the accountant a couple of times a year.

Expenses is a prime example – particularly as VAT is the first tax to get the MTD treatment. Especially for SMEs, there’s a culture around the shoebox of receipts, which you then give to your accountant to process at regular intervals. Digital VAT requires a process change. You will be required to use approved software to maintain digital transaction records with the amount, date and category.

This is very easy with expenses apps. You simply take a photo of the receipt using your smartphone, and the app then reads the information – automatically populating the required information. It takes about 3 seconds per receipt, so not a big time commitment over filing a physical piece of paper.

Invoicing is another area that will need attention. Again, providing information to HMRC more regularly means invoicing more quickly – and making sure your accountants have access to this information. A cloud-based accounting system makes this easy because you can give your accountant access to view invoices issued. Capium’s is even free for you to use, and very easy to switch to.

Communication is key to MTD success

The fact you’re thinking about MTD preparation puts you in a savvy group of businesses. Contact your accountant today about what specific processes you can change to make compliance easier on both ends.

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