Making Tax Digital: Are You Prepared?

Making Tax Digital: Are You Prepared?

Making Tax Digital is nothing new if you are a VAT-registered business with a taxable turnover in excess of £85,000. 

But if you’re not, then a government announcement last month could affect you over the next three years. More will join the MTD programme by 2023, including private landlords and businesses with a turnover of more than £10,000.

Since MTD was introduce in 2019, 1.4 million businesses have joined the programme, submitting more than 6 million returns.

The announcement by the government outlined two important dates to expand MTD. Some of the changes were due to take place this year, but concerns over Brexit and the coronavirus pandemic led to delays. 

This was what was announced: 

  • From April 2022, the scheme will be extended to all VAT-registered businesses with turnovers below the current £85,000 thresholds.
  • All taxpayers who file self-assessment tax returns for business or property income of more than £10,000 a year will need to join MTD from April 2023.

As part of the announcement, the self-employed may need to file quarterly accounts in the near future rather than annually.

What is Making Tax Digital?

Although it sounds scary, Making Tax Digital is a logical move away from paper accounts to filing all your tax affairs online using accountancy software.

Accountants, like us here at Concept Accountancy, can access your information to prepare tax returns. So, don’t worry if you think the introduction of MTD is going to mean you have to do everything yourself!

HMRC believes that using MTD will make it easier for businesses to keep their tax right. It believes that as it is more transparent, there will be fewer inaccuracies and inefficiencies, which can be a problem with paper tax returns.

You must use compatible software to send digital tax returns. HMRC has a huge list of software they accept, although we looked at bookkeeping software last week, and we recommend Xero.

Making Tax Digital for VAT

As we have mentioned, if you are VAT registered with a turnover in excess of £85,000 you already use MTD. You can also voluntarily register for MTD and HMRC says around 30% of small VAT-registered businesses have already done so.

The Financial Secretary of the Treasury mentioned during the announcement that lessons were learned from those who moved to digital accounts last year. Hopefully, this will make the next phase go smoothly!

MTD for income tax

With three years before MTD is introduced for self-employed people, there is plenty of time to prepare for the switch. You will need to move to accounting software if you haven’t already done so.

If your turnover is more than £10,000 you will need to move to MTD from April 2023. This means that many private landlords will be drawn into the scheme. Also, some people with ‘hobby’ businesses might also be drawn in due to this announcement.

MTD for corporation tax

It is four years since the consultation document on MTD for corporation tax and no announcement was made last month. It is considered complex for large partnerships or LLPs that operate like large businesses because each partner pages income tax individually.

A paper about this move is expected this autumn.

If you are concerned about Making Tax Digital or what to know more about planning for it, then contact us today.