Here at Capium, we have covered several informative blogs about Making Tax Digital (MTD) in an attempt to debunk the most common myths and to answer the most common queries our clients and readers have asked us.

In the MTD report published in December 2015, the vision about transforming the taxation system in the United Kingdom is discussed in detail. It mentions four foundations of MTD, namely:

  1. Tax Simplified
  2. Making Tax Digital for Businesses
  3. Making Tax Digital for Individual Taxpayers
  4. Tax in One Place

These four foundations are the basis of MTD upon which further changes or modifications can be made. In this post, we will be discussing the first foundation of MTD, i.e., making tax simple.

Why Did the Need Arise for Making Tax Simplified?

HMRC currently receives information from a wide range of sources. Each of this data is recorded on separate, stand-alone systems in order to maintain proper organisation of the information and its related sources.

The problem with this method is that it results in a lot of inefficiencies, errors, and burden on both the taxpayers and HMRC itself. For instance, some common problematic occurrences in the current taxation system include:

  • The data may be submitted too late with the detailed paperwork, and would lead to penalties for the taxpayer
  • The information provided to the HMRC can be wrong in one system, correct in another—there is no way to update the correct information automatically
  • The taxpayer being asked to report the data through a Self Assessment tax return, the information that the HMRC already possesses in one of their systems
  • The taxpayers have to keep providing information that the HMRC already holds in their possession, such as the details of employment and earnings.

These issues combine together to form bottlenecks, which give rise to the inefficiency of the entire system. There is certainly a need to make sure that the process is streamlined and that it is automated in a way that helps both the HMRC and the taxpayers in the long term.

What Will MTD Change?

With the implementation of MTD, the various internal systems in HMRC would be combined and integrated. As a result, they will act as the central hub of information that holds all details about every digital tax account in the country. This will significantly reduce (in some cases, completely eliminate) the bottlenecks and inefficiencies in the taxation system.

How Will the Change Help Taxpayers?

When MTD is implemented, each taxpayer and/ or business would have their own digital accounts where all their information would be recorded. This means that for every reporting, there will be no need to give information that the account already includes.

Apart from the information that you provide, HMRC will also collect the information from third parties such as banks or building societies. It will also research into further methods that would help make the process of updating HMRC easier.

It is important to mention here that the new system of online billing entails transparency in the system. A taxpayer would then be able to calculate what they owe on their own, without having to complete a Self Assessment tax return.

The bottom line is that this digitisation of the taxation system will be able to make the life easier for taxpayers and HMRC, and would make the process of collecting tax simpler and more efficient.

If you have any queries about Making Tax Digital, contact our friendly experts at Capium today!

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