Making Tax Digital (MTD) is the radical transformation of HMRC which will see the UK tax administration become one of the most digitally advanced in the world.
First announced in the Spring budget of 2015, the gradual introduction of MTD has been delayed several times, most recently due to the COVID-19 pandemic.
Under MTD, the UK tax system will be more efficient, more effective and easier for taxpayers to get their tax right, with registered businesses able to submit their tax returns automatically using MTD compatible software.
In our latest blog post, we take a look at what’s next for MTD including MTD for VAT, Income Tax and Corporation Tax.
Making Tax Digital for VAT (MTD VAT)
Following the soft landing period which ended in April 2021, MTD VAT applies to all VAT registered traders with a taxable turnover in excess of £85,000.
Despite this, there are currently 100,000 businesses in the UK that should be complying with MTD VAT but are not signed up, these businesses will be liable to penalties for not filing using approved MTD software.
If you are a VAT registered business and have a taxable turnover of over £85,000, you should be signed up through MTD and using MTD software to file returns.
The next stage for MTD VAT comes from 1st April 2022, when obligations will be extended to the 1.1 million VAT registered organisations in the UK that are trading below the £85,000 VAT threshold.
From this date, all VAT registered businesses must keep fully digital records and provide VAT return information to HMRC through MTD compatible software to comply with legislation.
Making Tax Digital for Income Tax (MTD ITSA)
MTD ITSA is currently in a pilot programme but this new service will replace the current self-assessment tax return.
Unlike the current self-assessment tax return, reporting through MTD ITSA will be due quarterly and not annually; though this could change following consultation with business and professional accounting bodies.
MTD ITSA will mean self-employed businesses and landlords with an annual income of more than £10,000 from property or business will need to follow the rules for MTD from 6th April 2023.
Following this, MTD ITSA will apply for all other income taxpayers within self-assessment from the 6th of April 2024.
Making Tax Digital for Corporation Tax (MTD CT)
Under MTD CT, companies will need to maintain digital records of income and expenditure, provide quarterly updates to HMRC using MTD compatible software and use MTD compatible software to file their annual Corporation Tax return.
MTD CT is currently in a consultation phase where the government are collecting views and opinions from companies and other relevant organisations.
The pilot for MTD CT is expected to start in 2024, with the earliest expected date for MTD CT to start being the 1st of April 2026.
How Can My Business Prepare for MTD?
For many businesses in the UK, MTD is now a requirement or will become one in less than a year. Ensuring your business is prepared now will make the switch to MTD as smooth as possible.
- Understand your obligations – Ensure that your business understands its obligations under MTD. Failure to do so could result in fines for non-compliance.
- Ensure your software is compliant – Under MTD, records must be kept and submitted to HMRC digitally. Ensure that the accounting software you use is compliant with HMRC’s digital tax systems.
- Train your staff – Ensure that your staff understand the businesses new obligations under MTD and how it might impact their role.
- Speak to your accountant – If you use an accountant to manage your business accounting, ask them what processes they have in place to ensure you are fulfilling your MTD obligations.
Talk to the Experts
With several delays over the past 6 years since MTD was first announced, businesses may have lost track of the timeline and are now unaware of their obligations and how they can fulfil them.
Whilst HMRC has been somewhat lenient thus far, there will come a time in the future where those not complying with MTD obligations will face fines.
If you are not feeling prepared for MTD and need a trusted accountant to ensure your business is meeting its obligations – give us a call today on 0117 379 0810 for a free consultation.
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This post was written by Steph Roffey