What is Making Tax Digital?

HMRC’s Making Tax Digital (MTD) initiative was first announced in 2015 and plans to fully modernise the tax system. It makes it easier for individuals and businesses to manage their financials by introducing a new online tax system, providing users with a personalised tax account containing relevant, up-to-date information. The initiative will come into effect by April 2019 and is compulsory for all VAT registered businesses with a turnover above the VAT threshold (£85,000), including the majority of Microsoft Dynamics NAV and Microsoft Dynamics 365 users. HMRC aims to become one of the most digitally advanced tax administrations in the world and streamline the tax system to be more efficient, reducing the estimated £8 billion that is lost every year due to avoidable tax errors.

How will Making Tax Digital improve taxes?

This revolutionary system is a big change but it’s a step in the right direction. There are many benefits of using an online tax system that have been outlined by HMRC:

Digital

The days of rifling through a year’s worth of receipts and filling out annual tax returns by hand are gone; the computerised system keeps information secure and gives you an up-to-date, comprehensive view of your financials in one central account. All information can be updated and accessed at any time from any device and customers and agents can interact with HMRC through webchat messaging at any time.

Regular Updates

Tax data, such as revenue and expenses, will be submitted quarterly rather than annually. HMRC will collect and process information affecting tax as close to real time as possible. The system gives full transparency of how much tax is owed throughout the year, including any liabilities and entitlements you may have. This new process helps businesses stay on top of their taxes all year round, rather than leaving it until March/April to process, reducing overhead and minimising errors.

Transparency

With quarterly updates, you can get a more accurate picture of your tax bill throughout the year, with the ability to view your balance at any time. Businesses can plan and budget more effectively, rather than relying on guesswork. Making Tax Digital helps streamline current tax processes, making processes easier and less time-consuming for all involved.

Automation

Timely administrative tasks can be automated through MTD, reducing administrative overhead and risk of errors. Information can easily be updated and HMRC won’t require manual input of any information they already have or can collate from sources such as banks, building societies and other government departments.

How will Making Tax Digital affect businesses?

From April 2019, MTD will apply to any business registered for VAT earning above the VAT threshold of £85,000. This gives just under a year to prepare for the new legislation. By April 2019, businesses need to:

  • Keep digital records for VAT purposes
  • Provide VAT return information to HMRC through MTD compatible software, not through the HMRC online portal

HMRC has stated that it won’t provide software for organisations. However, if you use a Microsoft Dynamics solution, digital records are already kept for each transaction in the system. To comply with MTD, your system needs to use an Application Programme Interface (API) to digitally link between HMRC and electronic records.

There may be costs involved during the transition, as new software may need to be implemented and staff training may be required, but the reduction in errors and administrative overhead after the initial transition will likely mean that money is saved overall. With over £3.5 billion in revenue being lost due to VAT errors in financial year 2014/15, MTD will certainly save money in the long run.

How is Microsoft supporting Making Tax Digital?

Microsoft has confirmed that their SMB accounting software will comply with the Making Tax Digital initiative when it comes into effect in April 2019, at least in versions in mainstream support. Microsoft Dynamics solutions already submit VAT reports electronically but, as technical requirements are unclear, Microsoft is working with HMRC to understand any further updates to Dynamics products that will be required. Legislation changes may occur before April 2019 and Microsoft has announced that it will follow the development closely so it can support its customers in their Making Tax Digital compliance journey.

FAQs

Q: We are using Microsoft Dynamics NAV. Will this software enable us to be compliant with Making Tax Digital?
A: Absolutely. We will ensure that all supported versions of Microsoft Dynamics NAV are compliant with Making Tax Digital when it is enforced in 2019.

Q: We are using Microsoft Dynamics 365 Business Central. Will this cloud solution enable us to be compliant with Making Tax Digital?
A: Certainly. That is one of the benefits of using a cloud service like Microsoft Dynamics 365 Business Central. At Microsoft, we have a commitment to enable our customers to be compliant.

Q: What is Microsoft doing to ensure that customers using one of the above solutions are compliant when Making Tax Digital is enforced by HMRC in the UK?
A: Collaboration. Microsoft is engaged in dialogues with HMRC and advisory groups in the UK, so we can ensure our software supports Making Tax Digital in a way that works for businesses.

Q: When will Microsoft release a roadmap describing the way towards Making Tax Digital for Microsoft Dynamics NAV?
A: Soon! When we and the Making Tax Digital community have a good understanding of what is required for the impacted businesses, we can review current product capabilities and identify necessary improvements.

Q: We currently have no accounting software. Can Microsoft help us with a solution?
A: Sure! Whether you have previously managed your business finances in Excel or other bookkeeping tools, you can benefit from a cloud solution like Microsoft Dynamics 365 Business Central.

How is Mercurius IT supporting Making Tax Digital?

A big worry for many customers using older versions of Microsoft Dynamics NAV is that they will have to fork out for a costly upgrade in order to become compliant. That’s where our Fixed Price NAV Upgrade service comes in. By quoting you a fixed price for your upgrade before we start work, we’re able to shift any risk of project overrun away from you as the customer. Using this method, some of our customers have saved over £25,000 on their upgrade bills.

Contact us if you have any further questions about Making Tax Digital or if you are interested in implementing an MTD compliant solution such as Microsoft Dynamics NAV or Microsoft Dynamics 365 Business Central.