Making Tax Digital - The Next Steps
Posted on 7th July 2021 at 15:55
In April 2019 HMRC launched Making tax Digital (MTD) whereby VAT registered business with taxable turnover over £85,000 had to start using digital links and MTD compliant software to submit their VAT returns.
HMRC intends to continue the roll out of its MTD scheme gradually to all businesses and individuals over the next few years. So, what is coming next?
From April 2022 all VAT registered businesses must follow MTD rules on their VAT returns, regardless of the size of their turnover.
Businesses are now required to keep digital links between the software they use, so data cannot be copied and paste from a spreadsheet into the accounting software. There must be a digital link to automate the process.
For example, if a business receives an invoice and has MTD compatible software that scans the invoice and retains all the details required for VAT purposes, including an image of the invoice then the paper copy does not need to be retained. Software that does this includes DEXT and Xero Touch but there are lots more to choose from.
MTD compatible software
Compatible software is defined by HMRC as being as software program that is able to record and preserve records, provide HMRC with information and returns from data held in those records and us an API platform.
Some great examples of compatible software include: Xero, QuickBooks, FreeAgent and DEXT.
Making Tax Digital Deadlines
The next set of key deadlines are outlined below:
April 2022: Making Tax Digital for VAT
From the 1 April 2022, businesses that are VAT registered must sign up for Making Tax Digital, regardless of their turnover. They must also be using a compatible software package that is able to link to HMRC. If you are using more than one software package, they must also be digitally linked.
April 2023: Making Tax Digital for Income Tax
From 1 April 2023, landlords and self-employed workers who have income over £10,000 that they declare through Self-Assessment tax returns must register for Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA).
From April 2024, Self-Assessment and Income Tax returns will have to be submitted quarterly but this won’t alter the usual tax payment dates.
April 2026: Making Tax Digital for Corporation Tax
The final tax to go digital will be Corporation Tax and this will not come into effect until April 2026. Businesses will have to maintain digital records and provide quarterly updates of income and expenses to HMRC. They will also have to use MTD compatible software to prepare and file their Corporation Tax.
Why get ready for Making Tax Digital now?
For businesses not currently keeping digital records or using software to submit their returns to HMRC there will be work upfront to get ready for the deadlines.
The benefit of using MTD compatible software though should not be underestimated. Knowing exactly where your business is up to means you get to make real decisions; understand how much profit you’ve made and budget for your tax bills. There are fewer surprises.
If you would like to know more about how we can help you prepare for MTD or would like assistance in migration to cloud accountancy software contact us today and one of our team will talk you through your next steps.
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