By Henry Williams on Small Business UK – Advice and Ideas for UK Small Businesses and SMEs
In today’s fast-paced business world, staying on top of your finances is crucial for the success of any small business or SME. That’s why the UK government has introduced Making Tax Digital (MTD), a new system that aims to make tax administration more efficient and effective for businesses.
However, there has been a lot of confusion and misinformation surrounding MTD, leaving many small business owners feeling overwhelmed and unsure about what it means for them. In this article, we aim to clear up any misconceptions and bust some of the most common myths about MTD.
Myth 1: MTD only applies to VAT-registered businesses.
Fact: While MTD was initially rolled out for VAT-registered businesses in April 2019, it will eventually apply to all businesses with a taxable turnover above the VAT threshold of £85,000. This means that even if your business is not currently VAT-registered, you will still need to comply with MTD in the near future.
Myth 2: MTD is just another way for the government to collect more taxes.
Fact: MTD is not about increasing taxes, but rather about making the tax system more efficient and accurate. By digitizing tax records and submissions, MTD aims to reduce errors and make it easier for businesses to stay on top of their tax obligations.
Myth 3: MTD will require businesses to submit tax returns every quarter.
Fact: Under MTD, businesses will still only need to submit their tax returns once a year. However, they will need to keep digital records of their income and expenses throughout the year and submit a summary of this information to HMRC every quarter.
Myth 4: MTD will be too complicated and time-consuming for small businesses.
Fact: The government has designed MTD to be as simple and user-friendly as possible. There are many software options available that can help businesses keep digital records and submit their tax information easily and efficiently. Plus, with quarterly submissions, businesses will have a better understanding of their tax obligations throughout the year, making it easier to plan and budget.
Myth 5: MTD will only benefit the government and not small businesses.
Fact: MTD is a win-win situation for both the government and small businesses. By digitizing tax records, businesses can save time and reduce the risk of errors, which can result in penalties and fines. It also allows businesses to have a better understanding of their finances, which can help them make more informed decisions and improve their overall financial management.
Myth 6: MTD will lead to increased costs for small businesses.
Fact: While there may be some initial costs associated with transitioning to digital record-keeping, the long-term benefits of MTD will far outweigh these costs. With more accurate and efficient tax submissions, businesses can save time and money in the long run.
Myth 7: MTD will require businesses to invest in expensive software.
Fact: There are many affordable software options available that can help businesses comply with MTD. Some software providers even offer free or discounted options for small businesses, making it accessible for all.
Myth 8: MTD will make it easier for HMRC to investigate and audit businesses.
Fact: MTD does not change HMRC’s ability to investigate and audit businesses. However, by keeping digital records, businesses can easily provide evidence and support their tax submissions if they were to be investigated.
Myth 9: MTD will not affect businesses until 2022.
Fact: While the initial rollout of MTD only applied to VAT-registered businesses, it will eventually apply to all businesses with a taxable turnover above the VAT threshold. The government has announced that this will happen in April 2022, so it’s important for all businesses to start preparing for MTD now.
In conclusion, Making Tax Digital is a positive step towards modernizing the tax system and making it more efficient for businesses. By busting these myths, we hope to have cleared up any confusion and reassured small business owners that MTD is not something to fear, but rather something to embrace. With the right tools and support, businesses can easily comply with MTD and reap the benefits of a more streamlined and accurate tax system. So, let’s embrace this change and make the most out of MTD for the success of our businesses.