The importance of digital taxation

The goal is to make tax administration more effective, more efficient and more accurate for taxpayers, by shifting a historically manual, paper-based process to an entirely digital one.

Making Tax Digital (MTD) is, in the government’s own words, part of ‘HMRC’s ambition to become one of the most digitally advanced tax administrations in the world’. The goal is to make tax administration more effective, more efficient and more accurate for taxpayers, by shifting a historically manual, paper-based process to an entirely digital one. And, as with so many transformation projects, this is to be achieved by turning a previously paper-based process into a digital one.


Does MTD apply to me?

Any individual or organisation above the VAT threshold – that is, any business with revenues above £85,000. As of this April, you must submit your VAT returns to HMRC using MTD-compatible software.

You don’t need to submit your first return immediately, but you do need to start keeping your records digitally, with the first full period that falls after April 1stbeing the one that you submit using MTD. This means that for monthly customers your first return will be 7th June, and for quarterly customers your first return will be 7th August.

As of next April, they will need a digital tax account, and to file their quarterly returns online. All businesses and individuals will have their own personalised digital tax account, and MTD will gradually become mandated for other taxes. The only exceptions are a few VAT-registered businesses with more complex requirements, for whom mandatory participation has been delayed into October. 

What do I need to do?

First, you need to officially sign up to the MTD service so that HMRC can verify your information and migrate your record to the new MTD system. You can do that here. HMRC is not undertaking a mass migration, and nor is it automatically signing up organisations over the VAT threshold – you need to action it yourself. Be careful not to do so until you have filed your last return through the old xml route.

Next, you need to shift to keeping all your financial records stored in a digital format, and be able to receive information back from HMRC via an API.

If you are not already using Enterprise Resourcing Planning (ERP) software, then, this is the perfect time to start. ERP software creates a central repository of information on all your accounting and financial processes, as well as business functions such as purchasing, sales, manufacturing, operations, marketing and more, so it not only incorporates the digitisation you are being mandated to introduce, it also generates wider business efficiencies, automation and intelligence. If ERP software was on your list for a future IT rollout, this is a sensible time to prioritise it, otherwise you will be duplicating effort in digitising your financial records now and then integrating them with ERP software later. 

It is important to remember that not all ERP systems are compliant with MTD, however. Odoo, for which Smart IT is a Gold Partner, is one of the tools that is. As a highly flexible and customisable suite of business apps, including tools to manage your finances, it offers the perfect flexible route into making your business compliant with MTD now – and strategically positioned for the future.

Will I be penalised for not filing MTD returns or keeping digital records?

Not initially. The government wants to follow a light touch approach for the coming year, so organisations doing their best to comply will not be issued with filing or record-keeping penalties. However, MTD is here to stay, and as outlined above, its scope is only going to widen. As such, it is best to get your house in order as soon as possible. 

So why not get in touch with us today to find out how Smart IT and Odoo can help?