As of 1st April 2019, HMRC is rolling out their ‘Making Tax Digital’ initiative for VAT. The idea behind this new way of working is that it should make the entire (currently fairly cumbersome) process of paying VAT a much easier, more streamlined, more efficient one. This, in turn, should mean that fewer businesses miss the deadlines and therefore receive fewer fines, keeping their finances in order and allowing them to continue when otherwise they may not have been able to.
Other than the benefits for HMRC and the fact that businesses should be fined much less, why would making tax digital for VAT be a good idea?
- A Smoother Process
At the moment, any business or individual making more than the £85,000 annual threshold must pay VAT (which, at the time of writing, is set at 20 percent). When it comes to making tax digital for VAT, the process will become a lot more streamlined. All of the tax information that is required will be found under one, intuitive and simple to use system, so business owners can immediately see just what the entitlements and liabilities that relate to them are. There will be no more confusion when everything is digitised.
- Less Paperwork
Instead of reams of paper which could include months’ worth of invoices and receipts, the Making Tax Digital software that will be used will make the process automatic. You won’t have to sift through all the paperwork every quarter. Instead, you will simply need to check through to ensure that all the transactions are correctly noted and update the system when your VAT payment is due.
- Fewer Mistakes
Tax is a complicated business, and getting it right takes time and money. Even then, mistakes can be made, and when that is the case, there are expensive fines to pay. Even filing late with no other errors will cost from £100 – the later the filing is, the more it will cost.
The MTD system will, so HMRC says, make mistakes a thing of the past for the most part. Although this means less money going to HMRC in terms of fines, when taken as a whole, this is actually a good thing for the economy. If businesses make mistakes in their taxes, or file their VAT information late and are fined, it is true that HMRC receive a boost. However, tracking that money down and creating the paperwork that goes with it, as well as the personnel required to deal with it, actually costs a great deal of money. Not only that but if businesses are fined less, they can contribute more to the economy.
- Access Any Time
Digital records mean that business will be able to access their files at any time, ensuring that everything is up to date, and obtaining any information they need. It means that they will always be able to know what their VAT bill is going to be, ensuring that they have the money to pay it; it won’t be a big surprise at the end of each quarter.