Are you ready for the extension to Making Tax Digital? If you’re VAT-registered, or submit a self-assessment income tax return, now’s the time to start preparing. #tax #MakingTaxDigital #MTD
Keeping the UK’s tax system running effectively and up to date with advances in technology is no easy task. But the introduction of the Government’s ‘Making Tax Digital (MTD)’ initiative is intended to solve this problem, by moving most taxation over to a digital model.
Making Tax Digital for VAT began in April 2019, making it compulsory for VAT-registered companies that met the £85k turnover registration threshold to comply with the MTD rules. But the MTD initiative will soon be extended to cover ALL VAT-registered businesses, followed by all sole traders and property owners who submit a self-assessment income tax return.
So, what will this extension of MTD mean for you and your taxes? We’ve summarised the key impacts and what you need to do to stay compliant with the MTD guidelines.
What does the extension of Making Tax Digital mean for you?
The Making Tax Digital system is already up and running for many VAT-registered businesses. But the extension of the initiative over the next two years is likely to bring a lot more UK businesses and individuals within the scope of MTD – and that means you need to be ready.
We’ve aimed to answer some of the key questions for you:
- How does Making Tax Digital (MTD) work? In essence, MTD moves the recording of tax records and submission of tax returns away from paper and online returns over to a digital model. Businesses and individual taxpayers will need to keep digital records of their finances and will then submit quarterly returns in a digital format, direct to HMRC.
- Who will be affected by the extension of MTD? The extension of the MTD initiative means that more businesses and individuals will now have to comply with the mandatory need for digital returns. According to the latest government briefing, this will mean:
- From April 2022: MTD will become compulsory for ALL VAT-registered business, including those below the £85k turnover threshold.
- From April 2023: MTD will become compulsory for all taxpayers who file income tax self-assessments returns for business or who have property income of more than £10,000 a year.
- What do you need to do? If you fall into either (or both) of the two affected categories, it’s prudent to start planning for the MTD extension as soon as possible. This means that businesses and individuals must:
- Keep digital records of their finances, along with all the relevant tax records
- Use a relevant accounting software that can connect to HMRC’s digital portal
- Submit a digital tax return on a quarterly basis, directly to the HMRC portal.
Setting up a digital accounting system for your finances
Getting your accounting system ready for MTD will help to iron out many of the potential pitfalls. For businesses that are operating in the digital domain, the whole process of submitting your VAT and self-assessment income tax returns becomes far easier to action.
If you’re using a cloud accounting platform, such as Xero, Quickbooks or Sage, then you’re already primed and ready for MTD. If not, now’s the perfect time to switch from a paper-based system, or a desktop accounting set-up, over to the multiple benefits of cloud accounting.
As your adviser, we can run you through the planning that’s needed for MTD compliance, and can make sure your digital accounting system is fit for purpose and ready to submit returns.
Article by BOMA