WATCH: What does Making Tax Digital mean for me? – Business111

In this episode of The Coffee Podcast, Liz Barclay and ACCA-registered accountant Arianna discuss the new 'Making Tax Digital' initiative by the UK government. This significant shift in how small and micro businesses report their income is set to replace the traditional annual income declaration with five yearly submissions. Businesses will now need to make a quarterly submission every three months, summarising their income for that period, and a final 'end of period' statement at the end of the year, which provides an opportunity to correct any errors from previous submissions. Importantly, these submissions must be made using digital software compatible with the 'Making Tax Digital' initiative. 

Arianna clarifies that businesses already registered for VAT have been using this system since around 2018. However, the new changes will also apply to sole traders who are VAT registered, as well as other businesses. The initiative will be phased in, with businesses earning above £50,000 required to comply from April 2026, and those earning above £30,000 from April 2027. It's important to note that these thresholds refer to income, not profit. Businesses will need to review their income collation and submission processes to ensure they are compliant with these new requirements.

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In this video, Liz Barclay and Eriona discuss the Making Tax Digital scheme, a UK government initiative that requires businesses to manage their taxes online. They address the concerns of small and micro-businesses, which include apprehension about using new technology, potential penalties for errors, increased frequency of tax payments, and the associated costs. Eriona acknowledges that these concerns are valid, particularly the worry about increased costs due to the need for more frequent interaction with accountants and the purchase of new software. 

Eriona advises businesses to consult with their accountants for guidance and to check their eligibility for the scheme. She also suggests looking at the list of government approved Making Tax Digital software on the Gov website. Some of these are free, while others come with a cost. She differentiates between software that connects directly to HMRC and bridging software, which acts as a temporary solution for businesses transitioning to digital tax management. Eriona recommends that businesses should aim to establish proper processes from the start, even if it seems costly, as it will be beneficial in the long run.

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In this video, Liz Barclay speaks with Eriona about the upcoming changes to the UK tax system, specifically the implementation of 'Making Tax Digital'. This new initiative, which is set to be phased in between April 2026 and April 2027, has raised concerns among small business owners who are unsure about how to navigate the changes. Eriona provides a step-by-step guide on how to prepare for this transition, stressing the importance of understanding what 'Making Tax Digital' entails and how it will affect businesses. 

Eriona suggests that the first step is to educate oneself about the new system. The government website is recommended as the most reliable source for the latest information. She also advises checking the last two years of tax returns to determine if your income is above £50,000, as this will likely require you to submit for 'Making Tax Digital' for income tax. If you're unsure, contacting HMRC directly for clarification is recommended. Once eligibility is confirmed, businesses should select an approved software from the government's list and ensure it is connected to their government gateway. Eriona also highlights the importance of seeking professional help, such as an accountant, to ensure the correct setup and ongoing compliance. She reassures that if set up correctly, the process of submitting quarterly should not be overly complicated.

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