MTD Updates July 2020
This week, the government made further announcements about the plans for Making Tax Digital.
Most VAT registered businesses with taxable turnover above the VAT threshold (£85,000) are following the rules of MTD. However, due to the impact of coronavirus, HMRC extended the original soft-landing period from 31st March 2020 to 1st April 2021.
This week, the government announced that MTD is now applicable to all VAT registered businesses with effect from April 2022.
Therefore, Making Tax Digital will be mandatory for any business that is VAT registered from April 2022, regardless of turnover.
The government’s aim behind introducing Making Tax Digital is that digital records are more accurate and therefore avoid costly mistakes. Mistakes which cost the Exchequer somewhere near £8bn per year.
HMRC believes that digital records will help to reduce the tax lost to avoidable errors to if not eliminate, by:
- Improved accuracy from digital records–reduction of human error
- Help features built into software products could help ensure that submissions are correct
- Information entered and sent directly from the software, this should avoid any errors when entering figures in multiple places
A reminder of some requirements of MTD
From April 2022, all VAT registered businesses will need to use dedicated record-keeping software, or a combination of software packages and spreadsheets.
However, if spreadsheets are used, the bridging software must read the information and submit electronically, with no manual adjustment.
Further announcements on MTD:
MTD for Income Tax
MTD for income tax will apply from April 2023 for unincorporated businesses and landlords, where income is above £10,000.
One point made by HMRC was that during the current pandemic, having these records would be useful during the development of support packages.
Making Tax Digital requires a quarterly summary of business income and expenses submission to HMRC using MTD compatible software.
At the end of the tax year, non-business information to finalise the tax return is added using compatible software.
The aim of requiring quarterly submissions is that taxpayers will receive estimated tax calculations, this will be helpful when budgeting for tax. The goal is to replace the current self-assessment tax return system.
As when introducing MTD for VAT, software packages are working to build the funcationality to their packages to prepare for MTD for income tax.
If you want to find out whether you are eligible for the income tax pilot, or want more information, you can visit HMRC for these details here.
The eligibility will widen over time, and by April 2021 the pilot will support most sole traders and landlords.
MTD for Corporation Tax
The government has announced that it will consult in Autumn on the detail of extending MTD to Corporation Tax. See the Stakeholder Communication Pack from HMRC here to find out more details.
If you would like to discuss how MTD is affecting, or will affect, your business, please contact us, and we will be happy to help.