Making Tax Digital
Making Tax Digital (MTD) is HMRC’s approach to digitalising tax administration and is a fundamental change to the way the UK’s tax system works.
VAT-registered businesses above the VAT threshold are already required to be MTD compliant, and the roll-out of wider adoption is already in motion.
If you are not already required to have MTD compliant records, you will be in the future. The sooner you start to create and store your tax records digitally, the easier it will be to start submitting those records to HMRC in a digital format.
At Standout we use a recommended MTD compliant cloud-based software package known as Xero for our clients.
Not only does this ensure that they will be compliant when the time comes, it also means that they can start reaping the benefits of real-time records and add-ons apps.
If you are one of the few businesses not already managing your finances in a digital format, now is the time to act.
MAKING TAX DIGITAL FOR VAT
VAT-registered businesses with a taxable turnover above the VAT threshold of £85,000 are required to keep their VAT records digitally and to submit their VAT returns using compatible software.
VAT-registered businesses with a taxable turnover below £85,000 will be required to follow MTD rules for their first return starting on or after April 2022. These businesses can voluntarily opt-in to the Making Tax Digital service before this time, if they wish.
Self-employed and partnership businesses and landlords with annual business or property income above £10,000 will need to follow the rules for MTD for Income Tax from their next accounting period starting on or after 6 April 2023.
When MTD for income tax becomes mandatory, affected businesses will be required to:
maintain their accounting records digitally in a software product or spreadsheet. Maintaining paper records will no longer meet the requirements of the tax legislation; and
submit information quarterly to HMRC and finalise their tax position after the end of the tax year.
The quarterly updates and end of year reports will need to made using a functional compatible software product that can access HMRC’s API (Application Program Interfaces) platform.
Self-employed businesses or landlords currently have the option to voluntarily opt-in to keeping digital records and submitting Income Tax updates to HMRC, instead of filing a Self-Assessment tax return, ahead of the requirement which will come into force in April 2023.
MTD for Corporation Tax will not be mandated until at least April 2026. There is currently a live consultation running, in which HMRC is compiling the views of companies, and other organisations that submit corporation tax, to help craft implementation.