Overview of the UK MTD.

What Does Making Tax Digital Mean For Businesses?

Making Tax Digital in The United Kingdom

The difference between the tax which is paid and the tax should have been paid is called the tax gap. The money destined for public services. According to HMRC, this tax gap is £33bn in 2016/17.

In this article, we’ll be talking about this tax gap figures and HMRC’s solution: Making Tax Digital

Tax Gap Figures

As I stated before the tax gap is the difference between the tax which is planned to collect and the actual tax that is collected. The reason behind this calculation is that the tax gap provides a useful tool for understanding the relative size and nature of non-compliance.

If we were to dive deep and look for why is there a tax gap, we could see that there are numerous reasons. Other than the obvious reasons; legal interpretation, evasion, avoidance and criminal attacks on the system, this may also be caused by simple errors in calculating the tax they owe, even with the best efforts. Or maybe due to lack of care.

The latest figures show that as a long term trend, the tax gap in the UK is declining. According to the HMRC it has reduced from %7.3 to an estimated %5.7, between 2005/6 and 2016/17. Also for the gap in VAT, HMRC states a long-term reduction in the same time period, from %12.5 to %8.9.

You could observe the change in a graph below and find detailed information from HMRC’s documents.

The UK Tax Gap

The graph shows the reduction of the tax gap in the U.K between 2005 and 2017.

With Making Tax Digital act, HMRC aims to eliminate the simple errors.

Everything you need to know about “Making Tax Digital” & VAT

Making Tax Digital is an initiative by the United Kingdom government which sets out a vision of an easier, digitalized taxation system for individuals and businesses. With these plans, HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world.

Considering HMRC’s initiative, the tax administration will become more effective, efficient and easier for taxpayers to get their tax right. In October 2018, HMRC (HM Revenue & Customs) has taken a major step forward in this ambition with the introduction of Making Tax Digital for VAT.

What is Making Tax Digital for VAT

MTD is to modernize the U.K. tax compliance processes by using a digital record keeping for the VAT-registered businesses with a taxable turnover above the VAT threshold £85.000. According to MTD, affected businesses are required to frequently report their taxes and keep detailed data.

What has changed?

If we simplify it down Making Tax Digital act would change majorly change the technique of reporting.

What is the technical change we are talking about? As of April 1st, affected businesses have to send a report, a document with filled 9 boxes, online. These 9 boxes must be linked digitally to the explicit details of those numbers.  And afterwards, they have to be kept digitally.

To recap the technical changes, Now the reporting system includes;

  • Bridging (between your software and HMRC for online reporting)
  • Digital Record Keeping
  • Digital Links

Who is affected?

Making Tax Digital initiative effects businesses above the VAT threshold. Meaning; all UK VAT registered businesses above the £85,000 sales threshold.

Benefits of being compliant with Sovos Foriba

Sovos Foriba SAP MTD Cockpit is a fully automated solution within SAP. Not only it eliminates the human error at calculation, but it also includes all technical needs. And if you use multiple programmes including SAP, it still works. Even being within SAP, our solution is able to extract data from other sources, cumulate them, build the report and send it to the HMRC.

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