Making Tax Digital or MTD for short is a government initiative that sets out a bold vision for a digital tax system and ultimately bring an end to self-assessment. Making it easier for individuals and businesses to keep on top of their affairs and get tax right.
HMRC’s main aim of MTD is to make tax administrations more effective, more efficient and easier for taxpayers, through the implementation of a fully digitalised tax system.
The changes outlined in the Making Tax Digital initiative will apply to taxpayers, most businesses, self-employed people, landlords and individual taxpayers. The new tax system will require the majority of business owners to maintain digital records using compatible software.
Four Foundations of Making Tax Digital
1.Better use of information
MTD will mean that customers will no longer have to give HMRC information that it already has or that they are able to get from elsewhere. For example if the information can be picked up from employers or banks then they will not have to ask the customer for it.
2. Tax in real time
Customers will no longer have to wait till the end of the year to know how much tax they have to pay. By HMRC collecting and processing your information they will be able to inform you of how much tax you have to pay as close to real time as possible.
3. Interacting digitally with customers
Customers and agents will be able to interact with HMRC at a time which suits them. Customers will have access to their digital account which will give them a detailed picture of their tax affairs. This will also provide advice, support through a webchat and prompts.
4. A single financial account
By 2020 all customers should be able to see a single picture of their liabilities and entitlements in one place. This will be a bit like online banking, where customers will be able to see a comprehensive financial picture in their digital account.