Making Tax Digital: 8 common myths busted
Confused about Making Tax Digital? Don’t worry, we’re here to shed some light on the situation and separate fact from fiction.
Myth 1. Making Tax Digital has been postponed
The rollout of MTD has already begun! The first major phase of the initiative, MTD for VAT, came into effect on 1st April 2019. Under MTD for VAT, businesses with VATable sales above the VAT threshold have to keep digital records and submit quarterly VAT returns using MTD-compatible software.
Update: The scope of Making Tax Digital for VAT will expand in 2022. VAT-registered businesses with a taxable turnover below £85,000 will need to follow Making Tax Digital rules for their first VAT return starting on or after April 2022.
Making Tax Digital for Income Tax Self Assessment will be introduced in 2023. It will require self-employed businesses and landlords with annual business or property income above £10,000 to follow the rules for MTD for Income Tax Self Assessment from their next accounting period starting on or after 6th April 2023.
MTD for Corporation Tax is expected to be the next phase in the initiative. However, HMRC has advised that MTD for Corporation Tax rules won’t come into effect until at least 2026.
Making Tax Digital for Income Tax will be introduced in 2023. It will require self-employed businesses and landlords with annual business or property income above £10,000 to follow the rules for MTD for Income Tax from their next accounting period starting on or after 6th April 2023.
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.
How do you feel about Making Tax Digital - the UK government's plan to digitise tax by 2020?
|I feel positive about it||41%|
|I don't know what Making Tax Digital is||20%|
|I'm not sure||15%|
|I don't have any opinion either way||13%|
|I feel negatively about it||11%|
Although the general mood is largely optimistic, elsewhere in the survey 84% of respondents felt that the government has not provided enough information about its plans for Making Tax Digital and just 4% felt that they’d had enough information about how it will affect their business. You can find out more about how MTD will impact you and your business in our free guide.
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 for MTD directly. This really means that the onus is on you to find a digital accounting solution that works for your business. With MTD for VAT already in effect - and Income Tax and Corporation Tax likely to fall under the scope of MTD in the future - now is the time to get organised.
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.
Myth 8. Switching to digital accounting is going to be incredibly stressful
We appreciate that it can be stressful to have to make a change – even if it will save you time in the long run. At FreeAgent we know that a lot of our customers feel that managing their business accounts using our MTD for VAT-compatible software already saves a lot of stress, especially when it comes to tax:
How did I freelance for 10 yrs without @freeagent? Book-keeping a breeze, auto invoice chasing and my support email answered in 32 minutes- Tom Albrighton (@tomcopy) January 12, 2017