MAKING TAX DIGITAL (MTD)
MAKING TAX DIGITAL (MTD) WAS FIRST ANNOUNCED IN THE 2015 BUDGET. MTD IS TRANSFORMING HOW BUSINESSES AND INDIVIDUALS PAY TAX, ACHIEVING A FULLY DIGITALISED ONLINE TAX SYSTEM.
The primary aim of Making Tax Digital is to make tax administration more effective, efficient, and easier for taxpayers through the implementation of a fully digitalised tax system. Since implementation in April 2019, MTD required businesses who have a turnover above the VAT registration threshold of £85,000, to keep all records digitally and submit their VAT returns to HM Revenue & Customs using compatible software.
While this was initially estimated to happen across all sectors of business by 2020, the government has acknowledged the need to potentially shift timelines based on testing and the need for resources to assist with Brexit, and therefore some planned services are being delayed. With the introduction of Making Tax Digital (MTD) for VAT in 2019, HMRC also introduced a “soft-land period” for businesses to have in place digital links between all parts of their compatible software. As per this soft-landing period, businesses would not be required to have digital links between software programs until their first VAT return period starting on or after 1 April 2021.
Key dates
- April 2021 – HMRC no longer accepts VAT submissions made using the XML facility. This means that MTD VAT returns must be submitted via HMRC’s MTD connection.
- April 2022 – VAT-registered businesses with VATable sales below £85,000 will need to follow Making Tax Digital rules for their first VAT return starting on or after April 2022.
- April 2023 – Making Tax Digital for Income Tax Self Assessment will be introduced requiring self-employed businesses and landlords with annual business or property income above £10,000 to follow the rules for MTD for Income Tax Self Assessment from their next accounting period starting on or after 6th April 2023.
- 2023 onwards – MTD for Corporation Tax is expected to be the next phase in the initiative. However, HMRC has advised that MTD for Corporation Tax rules won’t come into effect until at least 2026.
- Update: In response the coronavirus crisis, HMRC has announced that they have extended the deadline for putting digital links in place between accounting software and HMRC’s systems. The new deadline is now your business’s first VAT period following 1st April 2021.
MTD for VAT key requirements:
- Digital record keeping – storing all transactions in electronic form
- Digital links – have a digital link between final numbers and source data
- Digital submissions – all submissions must be made using appropriate software via HMRC’s new gateway
What are the benefits of Making Tax Digital?
- More transparency: Having an online tax account which you can access at any time. Business owners will be able to see what information HMRC holds on them, and as a result, won’t waste time re-submitting it. As well as being able to check their details are correct and up-to-date at any time, business owners will also be able to access more-tailored services.
- Real time data: Business owners will no longer have to wait until the end of the year to find out how much tax they have to pay. With a digitalised tax system, HMRC will collect and process tax information in real time to help prevent errors and stop ‘tax due’ or ‘repayments owed’ building up.
- Online banking: By 2020, business owners will be able to view their liabilities and entitlements as a single financial account.
- More flexibility: Being able to contact HMRC on its website via web chat and secure messaging, as well being able to receive and send data via whatever payment software they use, business owners can interact with HMRC at a time convenient to them.
Tailored Guidance and Training
We have already helped clients move their accounting records online, apply the best practice processes and controls, and take advantage of the associated efficiencies and technology.
MTD provides many compelling reasons to review your business record-keeping and future proof your accounting systems. By providing tailored guidance and training, no matter the size of your business, we can provide bespoke support to help you turn digital. We have already seen these benefits become reality for our clients.