What is Making Tax Digital and how does it affect me

MTD for VAT has already started and has been “live” for nearly two years.  It started with businesses above the VAT threshold limits (currently £85,000) in April 2019.  From the 1 April 2022, MTD for VAT will apply to all VAT registered businesses regardless of the level of turnover.

MTD for Income Tax should become law from 6 April 2024 (pushed back from 2023). MTD for income tax will apply to the self-employed, partnerships and to those who receive income from property, with gross income from these sources combined above a threshold of £10,000.

MTD for Corporation Tax is currently in the consultation process (closes 5 March 2021) and it is likely to be mandated from April 2026.

What is “Making Tax Digital”?

Making Tax Digital (MTD) is a government initiative to modernise HMRC’s tax system, with the aim of making the whole process of administrating tax simpler and more efficient. All your tax information will be in one place (your digital account) and you will be able to pay tax based on your business activity during the year. You can upload and update your tax account in real time.

Will it affect me?

If you own a business, or you are self-employed and you pay income tax, national insurance, VAT or corporation tax, then it is quite likely you will be affected.

This means you could be required to keep track of your tax affairs digitally using MTD compatible software, and to update HMRC at least quarterly via your digital tax account. Eventually this will abolish the annual tax return. This will be the law and there will be penalties for non-compliance. 

Please talk to us about how we can help your business comply with the new rules. We can recommend the right software and provide the training and support you need.  

Those of you who are VAT registered voluntarily will be affected first followed by those of you who are self-employed and landlords.  There will be change involved because the reporting deadlines will change from annually to quarterly for many of you and plus you will need to adopt digital accounting.  This could sound scarier that it really is.

We ran a very successful campaign to get all our clients ready for the first layer of MTD back in April 2019.  We will be running another education programme to make sure you are ready in time.  We will be by your side throughout the process.  Many of you would have seen the QuickBooks adverts (incidentally they our favoured supplier) on TV where they make it look so easy.  Well, it is not quite so simple, but the truth is probably somewhere between what you are envisaging and what the adverts say.

Whilst the timing of these changes is never perfect and especially now with everything else that is going on, at least we have time on our hand when it comes to MTD, and it is not a sudden jolt.  You can prepare for the transition with our support.  We can also use MTD as the motivator to bring change to your accounting system for the better so that you can use modern technology to save time and money. 

We all know change is difficult. In business as in our personal lives to get the best out we need to make incremental adjustments, but this is the first time in a generation where we have seen so much change altogether. Some of it is out of our control and a lot of it we can control and take charge.