Paying tax on time is not just mandatory but also necessary. It helps build the nation, contributes to welfare schemes, and helps in improving the healthcare and education system. Most importantly, taxes play an essential role in a country’s gross domestic product (GDP). Therefore, it helps in the overall economic growth of the country.
So whether you like it or not, you must pay taxes on time. But with the Making Tax Digital initiative, the UK government aims to restructure the tax system. HMRC stands for HM Revenue & Customs. It is responsible for collecting, paying, administering, and also enforcing taxes. Here is a detailed guide on how to make payments and pay HMRC digitally.
Making Tax Digital: How to Pay HMRC Digitally
Every individual and business needs to understand Making Tax Digital and how to make your payments online and go completely paperless. So, before understanding the process of paying HMRC digitally, let’s go through the concept of Making Tax Digital and its associated benefits:
What Is Making Tax Digital?
The MTD is a government initiative, introduced for both small and large-scale self-employed individuals or businessmen to maintain digital accounts of their tax records and returns. Thus, the government wants to reduce the tax gap. Making Tax Digital requires taxpayers to use software that works with the MTD initiative. With this, payers will be able to submit updates every three months, which brings the tax system closer to real-time.
The Benefits of Making Tax Digital
The scheme supports HMRC’s aim to digitalize the tax system. The benefits of Making Tax Digital are as follows:
- Making Tax Digital provides improved accuracy of digital records.
- It makes it easier for individuals and businesses to get their taxes right on the first attempt.
- Mean customers can use software to integrate tax management with business processes.
- It contributes to broader productivity gains as it encourages digitalization.
- It also helps reduce the amount of tax lost due to avoidable or manual errors.
- With the use of software products, digital documents can be sent directly to HMRC.
How to Register for Making Tax Digital
Since all businesses eventually need to comply with the MTD initiative, here is how you can register for Making Tax Digital.
- The first step is to download compatible software like Dext Prepare, which pulls information from your digital records and preserves it for six years.
- Next, you must register and sign up for Making Tax Digital using the government’s tax service.
- Some information you need to maintain online is personal details, tax number, scheme details, tax on supplies made and received, return adjustments, time or tax point, tax charged, collection made and received, daily gross takings, documents covering multiple supplies, etc.
How to Meet the Requirements of Making Tax Digital?
Once you register and sign up successfully, you need compatible software to do the following.
- Create and record all your business transactions.
- Calculate and summarise your transactions and determine what information you need to send to the HMRC.
- Send updates every three months about your business income and expenses. Doing so will avoid getting a late submission penalty fee.
- You can also send updates regularly if you wish to understand how a receipt or expenditure affects your estimated tax. Most compatible software allows you to send updates frequently.
- Confirm end-of-period statements.
- Use a bridging software that converts your records to the accepted format before submitting.
- If you own multiple businesses, you must maintain separate records and even make submissions separately.
- Property businesses within the UK are treated as one, while outside the UK are known as overseas property businesses.
- You can also authorize an agent to act on your behalf. If you already have an agent for Self Assessment, you do not need to re-authorize Making Tax Digital.
- The software you choose needs authorization as well. You can do so by entering your Government Gateway user ID and password that you receive while signing up for the software. Follow the instructions that show up.
- Repeat software authorization every 18 months. An excellent automated software keeps reminding you about it.
Standard Period Dates
You can use the dates given below to understand the quarterly periods and deadlines in each tax year:
|Quarterly period||Quarterly deadline|
|6 April to 5 July||5 August|
|6 July to 5 October||5 November|
|6 October to 5 January||5 February|
|6 January to 5 April||5 May|
Finalise your Income Tax Position
After finalizing your business income and making any necessary adjustments, you can send personal income information, such as your savings or dividend, to HMRC if your software has the functionality. Otherwise, you can also submit using your HMRC online services account.
After submitting information about your taxable income for the year, you can declare that the information is correct, complete, and final. Doing so becomes your last step in reporting your income to HMRC. Therefore, there is no need to send a further Self Assessment tax return.
Good software provides an end-to-end solution that supports you and your clients in Making Tax Digital for income tax self-assessment. With digital record-keeping, it can collect and categorize records. It seamlessly adjusts to new working methods and gives complete control and visibility over the required data.