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Making Tax Digital: A Guide to Success

paper tax returnMaking Tax Digital is the revolutionary new scheme being pioneered by the Government in an attempt to simplify the process of managing individual and business tax payments. The digitalisation of taxation will ultimately see the end of the traditional tax return, with the introduction of personal tax accounts that will make the entire taxation process more fluid.

HMRC identified a need to bring taxation into the 21st century as it became more apparent that the traditional approach was unnecessarily complicated. The existing process placed unnecessary pressure on businesses at the end of the tax year, lacked cohesion and created complications that could be avoided by utilising modern digital systems. The Making Tax Digital scheme has been designed to be more transparent with fewer surprises, reducing the chances of taxpayers making mistakes.

With so much uncertainty surrounding the changes being introduced by Making Tax Digital, here are a few key points we feel taxpayers should be aware of:

What are Digital Tax Accounts?

One of the key features of Making Tax Digital is the introduction of Digital Tax Accounts. This is essentially an online tax-management platform that provides taxpayers with a real-time overview of where they currently stand with their outstanding tax bills. Digital Tax Accounts are designed to give individual taxpayers and businesses more insight into the money they owe. It reflects all taxes that are payable, including corporation tax, VAT and Pay-As-You-Earn tax (PAYE). When fully functional, Digital Tax Accounts will link into day-to-day accounting software and will enable taxpayers to pay their tax bills as the year progresses, meaning your financial affairs can be managed in a manner that suits you. However, Digital Tax Accounts remain an unknown quantity to many and are likely to take time for many to get used to.

How will Digital Tax Returns work?

Although the traditional annual tax return looks set to become redundant as Digital Tax Accounts become established, taxpayers are still obliged to keep HMRC fully updated on their financial status and business activities. In fact, the frequency at which this occurs will increase to quarterly, meaning individuals and businesses will need to be more precise and vigilant with the information they provide. Whilst the changes will reduce the scale of the task at hand, the increased frequency at which your tax account must be updated is likely to cause problems for many. Taxpayers will need to ensure they introduce new systems to manage this correctly of face the threat of penalties from HMRC. As ever, responsibility for ensuring the correct amount of tax is being paid lies with the taxpayer.

How to register a Digital Tax Account

making tax digital

If you're yet to register a Digital Tax Account, the process is relatively simple for confident computer users, with an estimated completion time of fifteen minutes. The registration is initiated via the gov.uk website and will require your Government Gateway account details and National Insurance number. It’s worth noting that a temporary reference number will not work. Common problems encountered in the registration process tend to relate to errors with users’ Government Gateway ID and lost passwords.

Common problems encountered with Making Tax Digital

Whilst Making Tax Digital is likely to make the process of managing your tax simpler in the long-term, many individuals and businesses are struggling to come to terms with exactly what the new system entails. HMRC have made a series of changes to the planned roll-out of the new scheme which has caused confusion and uncertainty for taxpayers who are understandably concerned about the potentially serious consequences of not meeting their tax responsibilities. Failures to pay the tax you owe has the potential to lead to costly financial penalties and unwanted negative attention from HMRC.

Many of our existing clients have approached us with concerns over the introduction of Making Tax Digital and Digital Tax Accounts due to uncertainty over how it will impact on their existing systems and practices. Experienced taxpayers tend to be accustomed to the traditional tax return system and are daunted by the changes afoot. Fortunately, we are well-versed in managing the switch to digital tax accounts and the service we provide takes all the worry out of the impending changes. However, those who are yet to develop and implement robust systems to manage the switch effectively may leave themselves open to problems.

Individuals and small business owners who are less confident with digital systems and Information Technology are likely to be particularly susceptible to falling foul of HMRC’s expectations. The switch to digitalisation is beneficial to many but is already causing problems for many who simply don’t have the skills or confidence to create their online account, access the online hub and regularly update their status digitally.

Our Digital Tax Account service

Making Tax Digital is the future of tax management and there is no doubting it is here to stay. Creases are still being ironed out and uncertainty remains for the uninitiated, but we are confident digital taxation can benefit you and your business. With our expert input, a thorough understanding of digital taxation and our tried and tested systems, we can make the transition simple.

The Financial Management Centre has a thorough understanding of what Making Tax Digital entails and can take the stress out of the changes that are ahead. It is no secret that tax causes some of the biggest problems faced by sole traders and small businesses. By choosing the Financial Management Centre to take control of your digital tax account needs, we can relieve the pressure and ensure your transition to digital taxation runs smoothly from start to finish.

With the increased frequency of updates required by taxpayers, the need to learn how to navigate the digital tax account and the lack of uncertainty that remains over roll-out times of Making Tax Digital, the road ahead could be bumpy for the less confident taxpayer. Every year over 1 million taxpayers fails to meet their tax obligations, leading to costly financial penalties. We can ensure your business is not one of those that fall short. We understand the importance of getting things right the first time and guarantee you and your business will be up to speed with Making Tax Digital immediately.

We provide a cost-effective service for individuals and small businesses across the country and our experience is second to none. Don’t hesitate to get in touch and chat to one of our experienced advisors and make arrangements to speak to us in more detail to find out exactly how we can manage your digital tax needs. Contact us directly on 0800 470 4820 or 0333 202 7198 or email info@tfmcentre.co.uk for more information.

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