Making Tax Digital (MTD) is the electronic filing of tax information to HMRC, and there have been some important dates announced this week.
MTD for VAT
Since April 2019, most VAT-registered businesses with taxable turnover above the VAT threshold of £85,000, have been mandated to keep digital VAT records and to submit their VAT returns using MTD compatible software.
From April 2022, compulsory MTD for VAT will be extended to all VAT-registered businesses.
We do not anticipate this will affect that many of our clients as most below the threshold are not VAT registered, but any affected will be contacted to discuss their options.
MTD for income tax
MTD for income tax will apply from April 2023 for unincorporated businesses and landlords with total gross income above £10,000.
Businesses and landlords who join MTD for income tax will need to submit a quarterly summary of their business income and expenses to HMRC using MTD-compatible software.
The intention is that having made quarterly submissions of income and expenses, taxpayers will receive an estimated tax calculation based on the information provided to help them budget for their Tax.
At the end of the year, they will be able to add any non-business information and finalise their tax affairs using MTD-compatible software. This includes information about employment income, bank and building society interest, dividends, pension contributions, student loan repayments, etc, and the goal is for this to replace the need for a self-assessment tax return.
More frequent reporting may also lead to more frequent payment of Tax in due course, but that is not the intention at this stage.
This is the end of the self-assessment tax return as we know it and the beginning of more regular tax payments.
Quarterly reporting is not strange to VAT registered businesses, but for those who are not, this is going to be a huge change.
This will signal the end to the practice of delivering a bag of receipts to your accountant once a year for tax return season.
MTD for Companies
This is coming but at very early stages.
This is one of the most significant changes to Tax since the introduction of the self-assessment tax return on 6th April 1996. Clients will have to get used to more frequent interaction with their accountants, and there may well be an increase in fees to cover the extra work.
To mitigate this, keeping your records on a product like Xero will cut down on the time it takes your accountant to prepare, as a by-product Xero gives you a better insight to the profitability of your business.
To find out more about moving over to Xero and getting MTD compliant contact us.