Making Tax Digital (MTD) is an initiative by the UK government that sets a long-term vision to rule out the tedious tax return processes and transform the tax system. Are you yet wondering how it impacts your business and why the government is pressing so heavily on this digital tax system? The changes will impact if you are a business owner in the UK or an individual taxpayer. Read more about the UK government’s Making Tax Digital initiative.
What is MTD All About?
The Making Tax Digital initiative aims to make the entire tax system digital and modernised. Under this pronounced system, all businesses, self-employed individuals, landlords and every other person earning an annual turnover above the specified VAT (Value-Added-Tax) threshold will have to mandatorily maintain digital records and submit the same using designated software.
The main aim of this system is to ensure that the tax system is streamlined in the country and there is newfound ease of doing business. However, there is still a lot of confusion over the justification of this legislation by the UK government.
So following are some of the reasons why the UK government is so firm in implementing the MTD legislation.
Reasons That Justify the UK Government’s MTD Legislation
Eliminating Tax Evasion
The UK government has observed that a great deal of revenue is lost each year as some taxpayers, whether individuals or businesses are not paying their fair share of the tax amount. Thus, to tackle this issue and to bring fairness to tax-abiding citizens, the MTD legislation has been introduced so that evading tax and hiding income becomes difficult. The government has heavily invested in the digital system, ensuring real-time detection of tax discrepancies and allowing the government to act quickly.
Improving Collection of Tax
The MTD legislation is backed up by the UK government’s investment in artificial intelligence and implementing algorithms to detect business turnovers and transactions. Thus, by maintaining digital records, it becomes possible to supervise income and expenditure to ensure fair tax computation and payment of liabilities. Since, under the MTD legislation, evading tax will become difficult, it will improve the collection of tax and, thus, speed up economic development.
Creating a Fair Field
The UK government aims to create a fair field for all the taxpayers in the country by providing a single digital platform with the same rules and regulations for every taxpayer. It is believed that at least due to the making tax digital legislation, small businesses and taxpayers will be able to embrace digital technology and improve their digital skills. It will give them a fair advantage that mid-size enterprises and big taxpayers already enjoy.
Passing on Benefits to Clients/Customers
Tax digital legislation is framed so businesses can enjoy tax benefits, but they can also be passed on to the clients. By embracing the digital tax system, businesses save a lot on administrative costs, thus making the business more efficient and profitable. The benefits stemming from these profits can be passed on to the clients through reduced costs, discounts, etc. Also, when it comes to tax benefits, the rules are designed so that tax-abiding business owners can pass on several tax advantages to their fellow vendors in a B2B (Business to Business) model.
Simplifying System for Tax Payers
The new system ensures a smooth and simple interface for taxpayers to upload digital information and pay their taxes on time. The system is highly convenient and flexible, thus making tax payments easy. Under the making tax digital legislation, taxpayers will receive tax liability prompts to pay taxes on time to avoid penalties and fines. Also, it is possible to access tax information whenever required. Thus it will save taxpayers time, resources and administrative costs each year.
Reduced Paper Work
The making tax digital system requires businesses to maintain and submit their records digitally. It will ensure appropriate and easy submission of income tax returns. Thus, it eliminates the need to maintain any kind of paperwork and manual data entry, thereby removing the hassles in tax payments and filing of returns.
Clean Tax Administration
The digital tax system aims to make the taxation process accurate, transparent and highly efficient. Thus, maintaining digital records of business transactions reduces the chances of errors while computing tax. It helps the HMRC (His Majesty’s Revenue and Customs- department of the UK government responsible for tax-related matters in the country) to observe and quickly act against any tax evasion or non-compliance, thus keeping the administration system in the country clean.
Thus, HMRC making tax digital legislation will ensure all taxpayers pay their fair shares to the government on time. It will bring a clean and fair environment for everyone in the country. Also, eligible taxpayers can share the tax benefits fairly by motivating more businesses to join the regime.