In recent years, digitalization has become an essential part of many businesses, and tax administration is no exception. Making Tax Digital (MTD) is a government initiative designed to make tax administration more efficient, effective and easier for businesses, self-employed individuals and landlords.
The goal of MTD is to replace the traditional paper-based tax return system with a digital one, providing businesses with a more modern, simpler and user-friendly system for submitting their tax information.
MTD requires businesses to keep digital records of their income and expenses and submit their VAT returns using approved software. It has been mandatory for most VAT-registered businesses with a taxable turnover above £85,000 since April 2019, and it will be extended to include income tax and corporation tax from April 2023.
While MTD offers many benefits to businesses, there are some common mistakes to avoid when implementing it.
Here are some common mistakes businesses make when implementing Making Tax Digital:
- Not Understanding the Requirements
One of the biggest mistakes businesses make when implementing MTD is not fully understanding the requirements. The first step to implementing MTD is to understand what it is and how it works. Businesses need to ensure they have the right software in place to be able to submit their returns digitally. They must also keep accurate digital records of their income and expenses. Failure to comply with the requirements can lead to penalties.
- Failing to Choose the Right Software
Another common mistake businesses make when implementing MTD is choosing the wrong software. Businesses need to choose software that is compatible with HMRC’s requirements and can handle their specific business needs. They also need to ensure that their software is up-to-date and that they are using the latest version.
- Not Keeping Accurate Records
Making tax digital details requires businesses to keep accurate digital records of their income and expenses. One of the common mistakes businesses make is not keeping their records up-to-date. This can lead to errors in their VAT returns and potential penalties.
- Not Testing the System
Before submitting their VAT returns using MTD, businesses need to test their systems to ensure they are working correctly. Failure to do so can lead to errors and potential penalties.
- Failing to Train Staff
Implementing MTD requires businesses to train their staff to use the new system. Failing to do so can lead to errors and potential penalties. Businesses need to ensure that their staff understands how to use the software and keep accurate records.
- Ignoring Deadlines
MTD requires businesses to submit their VAT returns digitally and on time. Failure to do so can lead to penalties. Businesses need to ensure they are aware of the deadlines and submit their returns on time.
- Not Seeking Professional Help
Some businesses may find it challenging to implement MTD on their own. It is always advisable to seek professional help from an accountant or bookkeeper who has experience with MTD. They can help businesses understand the requirements, choose the right software and ensure their records are accurate.
- Not Updating Contact Information
Another common mistake businesses make is not keeping their contact information up-to-date with HMRC. This can lead to missed deadlines, penalties and missed communications regarding MTD requirements. Businesses need to ensure that they update their contact information with HMRC to avoid any issues.
In conclusion, implementing tax digital can offer many benefits to businesses, but it is essential to avoid the common mistakes outlined above. Understanding the requirements, choosing the right software, keeping accurate records, testing the system, training staff, meeting deadlines, and seeking professional help are all crucial steps in successfully implementing MTD.
If you need more information on Making Tax Digital Details, you can visit the government website for further guidance. It is also essential to keep up-to-date with any changes to the system to ensure you remain compliant and avoid potential penalties.