Monday, 14 December 2020

Making Tax Digital: a future we all have to embrace

Making Tax Digital (MTD) is a government programme that aims to move businesses and individuals in the UK away from using paper records and towards digital record keeping. It will make it easier to get your tax right and for you to have a clearer picture of your financial position. It is more effective, more efficient and will make paying your tax bill more straightforward, meaning it’s less likely that mistakes will be made.

MTD means that all businesses will be required to use digital record keeping tools and will need to submit their tax return from those tools. There are lots of tools that you can use to keep your records up to date and, depending on your needs, you should choose the appropriate one for you and your business. Studies have also shown that using these tools increases your productivity, as well as that of your accountant and bookkeeper (meaning our bills may be lower!)

There are four phases to MTD, so here is your timeline:

  1. Any business that is VAT registered with a taxable annual turnover of more than £85,000 had to move to MTD by the 1st April 2019.
  2. From April 2022, all VAT registered businesses, not just those over the earning threshold, will need to be registered for MTD.
  3. The third phase is from the 6th April 2023, when all unincorporated businesses and landlords with a turnover of more than £10,000 will need to complete a digital return for their income tax.
  4. The final stage will be to extend this to all incorporated business who are liable to pay corporation tax, but no date is set yet.

Some businesses may not be able to go digital, and, if they are unable to, they will not be required to do so. Businesses that choose to use spreadsheets to maintain their records and perform their tax calculations, will need their spreadsheets to interface with some form of bridging software, that will allow their VAT return data to be sent to HMRC from the spreadsheet. Due to Coronavirus, the launch dates for MTD for 2020 have been extended to 31st March 2021.

What does MTD mean for you?

  • It imposes new quarterly filing and potentially new payment obligations for businesses and landlords.
  • There will be a new late filing and payment penalty system that will apply to quarterly returns.
  • You or your accountant will still need to prepare your year-end accounts.
  • A year-end declaration will need to be filed, instead of a self-assessment return or corporation tax return.
  • HMRC will pre-populate some of the return figures, such as income from employment and pensions.
  • You will still need to check that the pre-populated information is correct.
  • Businesses and individuals who do not at present use MTD-related software, will have to do so, however HMRC will provide the software free of charge.
  • I would say this, wouldn’t I?! But the best way to switch to MTD successfully is to have an accountant work with you on it, in order to make the process as smooth and simple as possible.

MTD has some major advantages, but may be tricky for smaller businesses, particularly those who do not currently work with an accountant. This is because you will need to understand all of the small print, as well as learning to use new software. The best piece of advice I can give you is to work with a professional on this, not your mate down the pub who says he understands MTD!

Of course, I am one of those qualified accountants who knows the ins and outs of MTD, so if you want to get ahead of the game, and ensure it’s all done right first time, then please do get in touch.

tony@octaveaccountants.co.uk
02380 176190

Octave – making sure you’re perfectly in tune with MTD



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