Making Tax Digital (MTD) is a long-overdue modernisation of the way tax liabilities are handled – but what does it mean in practice? I often hear from clients confused or concerned about digital tax systems, so let’s get to grips with how MTD can help you.
To help VAT-registered businesses, including sole traders and limited companies, keep their taxes in order, the UK government made it mandatory to use cloud-based solutions in 2019. The result? The Making Tax Digital initiative was born.
Besides giving accountants fewer headaches, what are the benefits of MTD? Why make everyone change what they were doing if it was working? Well, there’s a couple of reasons:
1. Better record-keeping
The clearer your records, the easier it is for your business – and HMRC – to understand what’s going on. It’s as simple as that. Digital solutions are quicker than manually recording expenses. Forget trying to decipher illegible handwriting, apps like Xero can gather all the necessary information just from a photo of a bill, receipt or invoice. These digital solutions save you money too as your accountant won’t have to spend hours sifting through a mound of paperwork.
2. Easier financial tracking
Professionally and personally, everyone benefits from tracking their finances. Digitally tracking business finances is easier, takes less time, and allows you to quickly see your tax liabilities, so you’re not caught out. On a personal level, it helps keep tabs on spending and saving and makes it easier to collate finances closer to self-assessment time.
3. Future tax projections
Forgetting to plan for future tax liabilities is a mistake many businesses make.
But thanks to MTD, your business can easily track income, costs and profits and figure out how much tax HMRC will expect you to cough up. Projecting tax liabilities is essential. It means your company can plan ahead for the next few months or years, ensuring you have the necessary cash reserves to pay your tax bill when HMRC comes knocking.
Looking to put these benefits into action? Not sure where to start? Drop me a message, and let’s begin making MTD work for you!
All financial advice is subject to individual situations – please discuss your plans with a financial professional before putting them into effect to make sure they’re right for you.
