21st May 2021
You’ve probably heard of Making Tax Digital (MTD), the government initiative being rolled out to ensure that every individual and company submit their taxes digitally. It was billed as the biggest change in tax history and aims to make things easier for all concerned!
Those businesses whose UK taxable turnover is above the £85,000 UK VAT-registration threshold will have been following MTD rules since April 2019.
The pandemic has slowed down the rollout but currently it’s expected that VAT-registered businesses with a taxable turnover below £85,000 will need to comply with MTD by April 2022. Self-employed businesses and landlords with annual income above £10,000 will follow in April 2023.
One reason it’s important to know about Making Tax Digital is that it’s mandatory for many businesses, so you must be compliant before the relevant deadline passes or you could be fined.
So what, in theory, makes it easier? Well, the idea behind the government initiative is that the online system will reduce mistakes and miscalculations, as more of the tax return process is automated. This is clearly a good thing.
As online tax returns will need to be submitted at least quarterly, this should help businesses keep their tax affairs in order. HMRC believes it will also save people time when communicating with them – for example, if they’ve made an error on their tax, it can be addressed online rather than on the phone!
There are some exemptions but, broadly, if you’re a VAT-registered business with a taxable turnover below the VAT threshold of £85,000, you’ll need to keep digital accounting records and submit VAT returns to HMRC electronically from April 2022.
HMRC will require electronic reporting on a quarterly basis of your income, expenses and profit and everything will be stored in one place. You will have a confidential Digital Tax Account (DTA) for this.
To comply, you will have to use software which is compatible with HMRC’s Making Tax Digital systems. The government does not provide any free software so you must source a solution for your needs (or you can ask us to help!). Your software must be HMRC-approved.
Read further details in our guide on Making Tax Digital VAT, including software requirements, here.
For help and advice on MTD, such as what it might mean for you, how to select software, training – or to outsource the whole thing, please contact us. We’d be happy to help!
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Thank you for your understanding. We wish everyone safe and well as we weather these difficult times together.