If your business charges VAT, you will be aware that from April 2019, you now have to file your accounts through the HMRC Making Tax Digital (MTD) system if your taxable turnover was above £85,000. From April 2022, businesses below this threshold have to start using this system too, so it is important that you are aware of how Making Tax Digital works, and how Making Tax Digital for income tax will affect sole traders and landlords once it has been fully introduced in April 2024. Corporation tax is an additional stage that is not expected to begin until 2026 but is still important to be aware of what to expect so that you can prepare accordingly for this new tax system.
What is Making Tax Digital?
Making Tax Digital is a plan laid out by the UK government for HMRC to become one of the most digitally advanced tax administrations in the world. The aim of this was to keep accurate digital records of taxes paid using MTD compatible software, such as Quickbooks, Sage or Xero. The idea is to make it easier for businesses to keep on top of their affairs. Plus, it reduces the scope for error, making the tax returns process less time consuming and more straightforward.
Making Tax Digital for VAT
The first part of the process introduced was Making Tax Digital for VAT, applicable to businesses with taxable turnover above the VAT threshold. It now involves all VAT registered businesses having to follow MTD for VAT rules, using online software to submit all VAT returns. You must keep records of any VAT on goods and services you supply, receive, as well as the value excluding VAT on everything you buy and sell, amongst other important aspects of VAT. You can find a comprehensive list of VAT record keeping on the gov.uk website.
Making Tax Digital for Income Tax
The requirement to operate Making Tax Digital will be extended to 4.2 million taxpayers with business and/or property income over £10,000. This will be known as Making Tax Digital for Income Tax Self-Assessments and must be followed by businesses and landlords. Due to the pandemic, MTD ISA has been pushed back a year from April 2023 to April 2024 to make it easier for individuals and businesses to recover and prepare accordingly. This measure will allow you to submit your self-assessment tax returns with more accuracy than ever before. Find out more about this via the government website.
Making Tax Digital for Corporation Tax
MTD for Corporation Tax measures mean that MTD will apply to all businesses that are charged corporation tax with a very limited amount of exceptions. Unlike with Income Tax measures, there will be no exemptions for small businesses. The only exemptions are for businesses for whom it is not practical to keep digital records. This measure has been discussed extensively, and although it has been confirmed that MTD will be applied to corporation tax, this is not expected to happen until 2026 at the earliest.
If you require assistance transitioning to Making Tax Digital or would like further guidance on the process, our accounting experts at Omer & Company can help you. Our tax services can help you make sense of all these changes, and we can even file accurate tax returns on your behalf so that you never have to worry about missing a deadline. To find out more, give us a call on 020 8850 0700 or email info@omeraccountants.co.uk and we would be happy to discuss it further with you.
