Plans to introduce digital tax reporting for businesses that are not VAT-registered and the self-employed are being delayed by a year.
HMRC says Making Tax Digital (MTD) will be introduced in April 2024 for such businesses and people who file self-assessment and generate income over £10,000.
Originally, people in that bracket – including sole traders and landlords – were expected to join MTD in April 2023. But business groups objected, saying the changes were too soon after the chaos caused by the pandemic.
VAT-registered businesses with revenue over £85,000 must already use MTD. Any business registered for VAT below that threshold are able to use it voluntarily. But from April next year (2022) all VAT-registered businesses must switch to MTD.
Despite publicity about its implementation, many people are still unaware of Making Tax Digital it seems. According to research before the delays were announced, a poll of 200 plumbers found that 41% were unaware that the rules were due to be enforced in 2023.
To help, we explain all you need to know.
What is Making Tax Digital?
Many business owners or self-employed people record their income and expenditure using spreadsheets and paper invoices and receipts. Even if invoices are sent and received via email, they may print them out for their records.
In such cases, these details are complied and used file self-assessment or business records to HMRC. Some business owners, including the self-employed or landlords, send these details to bookkeepers and/or accountants so they can submit the required records on their behalf.
The government wants all businesses, the self-employed and landlords to switch to Making Tax Digital (MTD) instead.
What this means is instead of paper records, everything will be submitted using HMRC-approved software. And by smartphones to photograph invoices and receipts, such as those from fuel stations, will, HMRC says, make life easier. They say that without losing paperwork, tax bills will also be more accurate.
What do I need to know?
Although Making Tax Digital plans are delayed for small businesses and the self-employed, we think it’s best to be prepared.
Don’t leave choosing compatible software and registering for the Government Gateway (see below) until the last minute. With an extra 12 months available, do your research now.
You will need your Government Gateway user ID and password. If not, you will need to sign up via gov.uk. You then need the following to sign up for MTD:
- Business name
- Email address
- National Insurance
- Business start dates and registered address (if applicable)
- Accounting period and accounting type
To be able to use MTD, you will need to use accredited software that work with HMRC’s systems.
The only way to use MTD is through software that is compatible with HMRC. To be honest, there are a lot you can choose from and you can check out whether it is compatible on its website.
Most compatible software also allows you to use other apps that make life easier, such as scanning receipts. All the data is automatically transferred from the app to your digital records. This will help you file more quickly and efficiently.
If you are unsure about MTD or compatible software, contact us today to speak to one of our team