Making Tax Digital (MTD) is a HMRC initiative to move away from only filing tax returns annually.
When MTD is up and running businesses will need to submit tax information – such as income and expenses – on-line every three months, with a fully digitalised tax system expected to be in place by 2020.
The changes will apply to the majority of business owners, self-employed, and landlords. Some of your business information such as some bank data and information from other government departments will load automatically into your “digital tax account”, and you will need to check it and provide additional data every three months.
Records will have to be kept digitally and taxpayers will have to send quarterly updates with summaries of income and expenditure to HMRC. You will need to submit the update within one month after the quarter end.
It all seems daunting, especially if you need to install new software, and there will be more many reporting deadlines.
However, if you view it as an opportunity to enhance your management information by regularly updating income, expenses and profit in your business – it will help you make better business decisions, and should also lead to fewer surprises as you’ll find out what your tax liability is every quarter.
What is the timescale?
The VAT element will begin rolling out from April 2019 for businesses with a turnover above the £85,000 VAT threshold.
Businesses with a turnover below the £85,000 VAT registration threshold will have the option to register for MTD from April 2019. The intention is that in the following year, it will be rolled out to all businesses who will be a required to keep digital records and update HMRC quarterly for other taxes.
For businesses with turnover that exceeds the £85,000 VAT threshold, MTD for VAT starts from the first VAT return period 1st April 2019 onwards. The VAT returns for these businesses will have to be filed using 3rd party commercial software as the online VAT form will not be useable.
MTD for income tax will not be required until April 2020 at the earliest; likely to begin with effect from the first accounting period beginning April of the tax year that MTD for income tax is introduced.
What do you need to do?
Firstly, work out when it will apply to you. For self-employed individuals, landlords and business owners, with a gross turnover and/or rents over £10,000, its likely to be 2020, but it’s not yet finally confirmed.
You will need to have a disciplined approach and ensure your accounts are kept up to date (but you should be doing that anyway!), to be able to provide the data needed.
As your returns will need to be submitted online, you will need to be able to do this through an HMRC app or online accounting software. Most accounting software will be adapted to be able to meet the needs of MTD, and if you don’t have accounting software you should think about whether it would be beneficial to your business.
If you use an accountant they will be able advise you.
If you need more information, here’s a link to the government website.
Our online learning portal has a whole section dedicated to Business Taxation. It includes a detailed breakdown of the four main types of taxation, information on allowances and credits, a video on tips for more successful tax planning and much more. You must be logged in to be able to access it here.
Make sure you're ready for Making Tax Digital.