Introduction

Whether you are a small business owner or an individual taxpayer, managing finances and paying taxes on time is essential for every single individual. 

However, in the modern digital era, the headache of keeping track of taxes is easier than before. 

Thanks to the government's initiative called Making Tax Digital in the UK. 

It offers assistance in staying compliant with tax regulations. MTD is a transformative initiative to make the entire tax system more efficient, effective, and easier for taxpayers.

Are you fully aware of this step of the UK's government or still not?

Whether yes or no! Not a big deal.

The upcoming text will act as a comprehensive guide to help you understand the MTD concept much better. Let us have a look!

What Is Making Tax Digital?

MTD is a government initiative to reform the tax system of the United Kingdom digitally. This effort of HM Revenue and Customs (HMRC) has made tax reporting easier for businesses. 

Not only this, but is also effective in increasing the transparency in the tax accounting system. 

By this, businesses need to maintain their digital record that updates and stores all the important information or financial statistics in one place. 

As a result, this transparent process reduces the errors associated with paperwork for tax filing. 

However, this digital recordkeeping requires much attentiveness because failure to keep records will result in high penalties and interest rates. 

What Are the Benefits of Making Tax Digital?

The UK Government has made an effort for tax automation to reduce the inconvenience that was generated by paper records. It offers umpteen benefits like removing the flaws that come along with paper tax filing. However, there are many other benefits of MTD as follows:

  • Stress-free tax filing:

First of all, the most beneficial thing about the MTD is milestone-based tax submission. In short, you only need to jam some of the data of the full financial year. Automatically, there will be more precision in short terms to calculate fewer numbers.

  • Tax information from any device:

With a digital tax process, all of your information is available in one system. Thus, making it easy to view and access your tax information anywhere, anytime you need it.

In addition, you can log in to your account through a smartphone, laptop, or tablet to view and edit the data anytime.

  • Paperless taxes:

Due to the digitalization of taxes, businesses must file their returns online. There is software to maintain the accounts and regular updates of the HMRC. 

Moreover, it is beneficial to detect mistakes as they happen. So, you only need to go through some receipts after the end of the year.

  • Tax in real-time:

As the process of tax filing is quarterly based, so there will be no need to wait until the end of the year. You will have a continuous real-time view of your tax liabilities as they change.

Thus, one can keep the money aside to pay taxes.





What Are the Risk Factors Associated with Digital Tax Compliance?

While Making Tax Digital (MTD) offers a smoother tax filing experience, there are some potential risks to consider. Here's a breakdown of the key risk factors associated with digital tax compliance:

  • Privacy Concern:

Every single user is not comfortable with the lack of privacy that comes along with the digital tax collection system. As some of the online transactions and bank data become visible to HMRC.

Despite the safety concern, working online adds an extra layer of security to your data. Hence, offers fraud protection. You can easily audit the trail of transactions electronically. Thus making it effortless to find out the list of transactions performed in the past. 

  • Technical Knowledge:

Submission of tax returns online requires the business owner to manage their accounts on an app or software. But it is a daunting task for those individuals who are not-so-tech savvy. 

Nevertheless, software accounting is not at all impossible to learn but it takes time. 

  • More Deadlines:

It is the prime drawback of a quarterly-based online tax filing system, as you need to pay the tax every three months. So, the deadlines will be longer. As a result, you need to be aware of how much tax you owe along with the submission dates. 

Conclusion

In a nutshell, the government of the United Kingdom has initiated the effort of Making tax digital for ease of tax filers. No doubt, it offers various benefits by paying the yearly return via quarterly milestones. The real-time activity check feature is great and one can have a record of all taxes paid before, anywhere anytime. 

However, some drawbacks of making tax Digital in the UK make some individuals a little uncomfortable with Tax Transformation. But becoming habitual in using the software of tax automation will make many things easier for all!