Making Tax Digital: Definition, Benefits, and Implementation

This report provides an overview of Making Tax Digital (MTD), a significant adjustment to the UK tax system. It explains MTD as a government initiative aimed at making tax administration more efficient and easier for businesses and individuals through a digital tax system. The report details the implementation of MTD, focusing on its requirements for online tax payment, filing, and digital record-keeping, particularly for VAT. It highlights the benefits of MTD, such as improved accuracy and the consolidation of taxpayer details in a single place. The report also references key resources like GOV.UK, ICAEW, and Xero to provide a comprehensive understanding of MTD's definition, application, and impact on businesses. The report clarifies the process of submitting VAT returns online and the importance of maintaining digital records using MTD-compliant software. It also touches upon the implications for income tax, including quarterly updates and estimated tax computations.

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MAKING TAX DIGITAL
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Making Tax Digital
Meaning of Making Tax Digital
Also referred to as MTD, Making Tax Digital is usually fundamental adjustment made to the
UK tax system administration (ICAEW 2019). In other words, MTD is considered as a
government initiative which sets out or establishes bold vision for digital tax system making
it stress-free for businesses and individuals to acquire their tax and keeping on their
undertakings (GOV 2019). Basically, MTD was aimed at making tax administration
relatively more efficient, easier for taxpayers and more effective through execution of
absolutely digital tax system. Basically, MTD involve making fundamental adjustments to
the manner in which tax systems within an organization works; that is, transforming the tax
administrations so as it is more efficient, more effective and easier for taxpayers (Xero 2019).
MTD is the government’s flagship initiative that needs online tax payment and filing and
digital record keeping. Under this notion, all taxes would be in this initiative, though only
MTD for the VAT presently has actual roll-out period, with rest following in the year 2020
(ICAEW 2019). According to Xero (2019), MTD for the VAT was launched officially in
2018 and is currently open to all organizations wishing to participate in using the MTD
software. This pilot for the MTD is expected to end on April 2019, where the software for the
VAT will be officially delegated for all VAT-eligible firms. After this period, one will no
longer have the capacity to manually complete paper-based VAT returns but would be
required to complete the VAT returns online at their HMRC VAT portal (GOV.UK 2019).
Simply, if a business is VAT-registered with some VAT-eligible turnover, the MTD would
therefore be applicable. As such, if one suspects a client or business would soon be in VAT

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threshold, they should start keeping the VAT records on digital records using the MTD which
enables them ensure legal needs for proper record keeping.
Basically, it is common for tax accounts and records to be maintained digitally in MTD
software or to be maintained through cloud-based application. Difference under the MTD is
that software utilized by our businesses should be able to keep and maintain record specified
within the guidelines, preparing the VAT return using any relevant information maintained in
the digital records as well as communicating with the HMRC digitally. In case the records are
current, MTD software would collate and prepare these returns for the business. It would later
display these returns to the client and request the client to declare the returns are correct and
that s/he is willing to submit the returns to the HMRC (Xero 2019). Once the return records
are submitted to the HMRC, one receives confirmation via the MTD software. Furthermore,
landlords and businesses that join the MTD for their income tax would be required to send
some quarterly reviews of their expenditures and income to the HMRC using the MTD. In
response, they are expected to receive estimated income tax computations on the basis of
information given to assists them in budgeting for the tax (GOV.UK 2019).
As such, MTD has its share of benefits in regards to VAT and income tax. For instance, MTD
comes with improved accuracy and assists in building in several software products. In this
sense, information is mostly directed to HMRC from the digital archives, this eliminates
probability of reversal miscalculations (GOV.UK 2019). Further, MTD would be beneficial
since it brings together every taxpayer’s tax details in a single place (Xero 2019).

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REFERENCES
GOV.UK 2019, Overview of Making Tax Digital; Viewed from,
https://www.gov.uk/government/publications/making-tax-digital/overview-of-making-tax-
digital (Accessed at 31st March 2019),
ICAEW 2019, Making Tax Digital; Viewed from,
https://www.icaew.com/technical/tax/making-tax-digital (Accessed at 31st March 2019)
Xero 2019, What is Making Tax Digital? Viewed from,
https://www.xero.com/uk/resources/making-tax-digital/ (Accessed at 31st March 2019)