Digital tax, it’s likely that you’ve heard of it since the Government launched the Making Tax Digital initiative in 2019.
The idea was to improve tax administration for business owners and the self-employed.
More incentives are due to launch soon, and digital tax will soon be the norm. So we’re covering everything you need to know.
Why do we need digital tax?
Making Tax Digital ultimately saves you time if you run a business. It’s a more efficient and much simpler way for your company to complete your required tax admin tasks.
It helps to minimise errors and ensures people submit information on time to HMRC. It’s a lot easier to keep track of the information you need to submit, and provides one central place to submit it. Gone are the days of keeping records all over the place and not quite knowing how much you need to pay or when.
What digital tax processes have launched?
There was a delay in the overall rollout of the Making Tax Digital initiative, understandably due to the pandemic.
A few updates are still to come, but here’s a quick run down of everything you can currently do to handle your tax online.
Personal Tax Account
Back in 2015 the government took the first digital tax step, by launching the personal tax account.
Within your personal tax account you can:
- Check your income tax estimate and tax code.
- Fill in, view and send a personal tax return.
- Claim a tax refund.
- Check your income from work over the last 5 years.
- Check how much tax you paid over the last 5 years.
- Check and manage tax credits.
- Check your state pension.
- Track online tax forms.
- Check or amend your marriage allowance.
- Submit a change of name or address to HMRC.
- Check or amend your work benefits (e.g. company car, medical insurance)
- View your national insurance number.
Making Tax Digital for VAT
2019 saw the launch of Making Tax Digital for VAT, business owners with a taxable turnover above the VAT threshold of £85,000 were required to keep digital records using accounting software to complete online VAT tax returns.
Making Tax Digital in 2022
From the start of November 2022, all VAT-registered businesses are required to use Making Tax Digital compatible software to keep records with a Making Tax Digital Account. Good news, Xero is a recognised HMRC-recognised software!
Which digital VAT records should I be keeping?
You’ll need to keep digital records of the following:
- Business name and contact information.
- VAT number and details of any schemes (if any) used.
- VAT on supplies made and received.
- Any adjustments to returns.
- Time of supply (tax point).
- Rate of VAT charged on supplies made.
- Reverse charge transactions.
- Daily gross takings (if you use a retail scheme).
- Purchases of assets you can reclaim tax on if you use the Flat Rate Scheme.
- Value of sales made and total output tax on Golf Accounting Scheme purchases (if applicable to you)
- Documents covering multiple supplies made or received on behalf of your business (by volunteers, third party businesses or employees).
This might look like a long list, but the good news is that if you choose the right software and set it up properly, it’ll do most of the work for you.
What’s next?
Income tax is next on the agenda. The plan currently states that as of April 2024, all self-assessment taxpayers who file income tax, including self-employment or property income, of more than £10,000 will need to do so digitally.
What can you do to prepare?
Start looking into recognised software already to get a head start! Like we said, Xero is a recognised platform and it’s great. In the interests of transparency, there are other tools out there you can use too!
How can we help?
We’re Xero experts! The whole team are Xero certified, so please do give us a shout! We can also help you with any tax enquiries and tax diagnostics.
