UPDATED JANUARY 2023
Since our original post, HMRC have again deferred the start date for Making Tax Digital Income Tax Self Assessment. Our original post remains intact, but the main changes announced in December 2022 are:
- The start date has been deferred to April 2026.
- Self-employed and landlords with a turnover over £50,000 joining in April 2026.
- Those with a turnover over £30,000 will join in April 2027.
- The Government will carry out a review to decide if those with a turnover below £30,000 will be mandated to join.
April 2019 was a landmark moment for HMRC, when the government introduced Making Tax Digital a scheme that aimed to transform the way businesses and individuals pay their taxes. But what is Making Tax Digital, and how does it affect your business?
What is MTD (Making Tax Digital)?
Making Tax Digital is more than just one regulation change. It’s an ongoing effort to transform the tax system and, as the name suggests, make it digital. MTD came into force in 2019, and the scheme aims to put an end to the traditional tax return with a range of HMRC services available through digital tax accounts. This will reduce paper records and increase accuracy.
Businesses with a turnover above the VAT threshold now need to submit their VAT returns digitally. Those who fail to do so will be treated as non-compliant and could face a financial penalty, so it’s essential to prepare properly.
How to prepare for making tax digital
If you choose to file MTD independently, you’ll need to tick a few boxes. You should:
- Check which MTD rules apply to you. Different companies have different deadlines to move to Making Tax Digital, so make sure you know your deadline and avoid penalty points and fines.
- To sign up, you’ll need to ensure you use the correct kind of software to process your MTD submissions. The software will allow you to submit VAT returns through MTD – you can check which software is compatible
It’s essential that you sign up for MTD before your relevant deadline.
What does Making Tax Digital mean for me?
You’ll need to register at some point. By July 2020, over 7 million VAT returns had been filed through MTD. On top of that, 27 per cent of smaller VAT-registered businesses, who did not have to initially sign up for MTD, had registered for the scheme. The majority of those had done so to access the more straightforward and robust record-keeping.
As with any tax matter, many business managers will be asking themselves, do I need an accountant? While it’s not a legal requirement, working with an accountant to manage and submit tax returns brings benefits. How much does an accountant cost? It could be less than the money that they save you.
What is the Making Tax Digital timeline?
Currently, any business with taxable turnover above the VAT threshold, set at £85,000 a year until April 2024, needs to use the MTD service to submit their VAT returns. That includes any kind of VAT return, whether it’s quarterly, monthly or annually.
There are further expansions planned for the scheme. The future Making Tax Digital timeline currently looks as follows:
- VAT-registered businesses under the £85,000 threshold will have to register for MTD before April 2022.
- It will be a requirement for the self-employed to submit returns digitally for income tax purposes from 2024.
- Partnerships are due to move to MTD from 2025.
- Corporation tax is the final phase and is not planned before 2026.
Eventually, MTD will take all tax records off paper. The benefits for both businesses and HMRC are massive, and it’s crucial that you sign up on time.
Could I be fined if I miss a deadline?
According to the Government, penalties will be issued on a points-based system, with one penalty point for any missed submission. There will be a five-point threshold for monthly submissions, four points for quarterly and two points for annual meaning you could receive a fine within six months.
Fortunately, penalty points aren’t permanent. They will be erased after a period of ‘good compliance’, defined as six compliant monthly submissions, four compliant quarterly submissions or two compliant annual submissions.
Need some help?
Whether digital tax returns and MTD leave you confused, or you simply don’t have the time, UWM Accountants can help your business stay compliant with the digital system. We’re a team of accountants in Leeds and a Xero Gold Partner, an MTD-compatible software. Not only that; we have years of experience in processing digital tax returns for companies of all sizes in a wide range of industries. Get in touch with UWM today for expert advice on your tax submissions.
