Making Tax Digital (MTD) means that by 2020 most UK businesses will manage their tax affairs online. This will also affect many self-employed tax payers. Replacing the current self-assessment system, MTD will also see a move from the current annual system of submitting tax returns to a quarterly reporting system.
Additionally, self-employed tax payers will have the option to use a 'pay as you go' system, based on the ongoing submission of information to HMRC. You'll also be able to track your tax affairs in real time, rather than having to wait until the end of the tax year to see what you owe. MTD will have a range of effects across your business, so it is vitally important that you are ready for the transition.
Let's take a look at just some of the implications.
Rather than the current system of submitting tax returns either in paper format or through Government Gateway, under MTD, businesses will be required to report their tax affairs through third-party software. Of course, most businesses already manage their taxation and accounts through software of some description. The only difference will be when it comes to submission.
If you're already using an accountancy program, you'll want to check with the provider to see if and when this will become MTD compatible. If you can't find this information, or you're using a legacy system, you'll want to consider switching as quickly as possible.
HMRC intends to publish a full list of compatible platforms in the near future. They estimate that most of these will cost around £280.
The digitalisation of taxes also presents some obvious cyber security risks. Cyber-attacks against businesses are on the rise, and the General Data Protection Regulations (GDPR) mean that a data breach has the potential to bankrupt a company overnight. As such, you'll want to make sure you do everything in your power to protect your IT infrastructure. This applies to all machines in your network, as cyber-attacks target the weakest points in your security system.
At a basic level, this means you should at least ensure that the latest versions of your security software are installed on all of your devices. You'll also want to make sure your staff understand the importance of security best practices, like using difficult to guess passwords and recognising malicious emails.
Making Tax Digital is an ambitious project, with the potential to offer businesses massive savings, both in terms of time and money. However, it also poses risks, both in terms of security and disruption if businesses are not properly prepared.