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, directly 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-assessment 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 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 advisers, 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.
Please contact Jake for further assistance – j.mackenzie@mphaccountants.co.uk
