What is Making Tax Digital and how does it work?
As part of an ambitious plan to overhaul the entire tax system in the UK, the government recently unveiled an initiative called Making Tax Digital (MTD). The plan’s ultimate aim is to eventually make all tax paperless for both individuals and businesses throughout the UK.
While full implementation is still a few years away, MTD has started to be rolled out for certain types of businesses. Here, we’ll take a look at when and how your business might be affected by the changes, and the best ways to deal with it.
A timeline of MTD
HMRC are rolling out the initiative over an extended period. Here are the key dates outlined in the plan:
– April 2019
The first phase was introduced on 1st April 2019. After this date, all VAT-registered businesses with a turnover above the threshold of £85,000 have been required to record their transactions digitally, and file VAT returns using only MTD-compliant software (don’t worry, we’ll cover the software issue later in this article). More complex businesses—such as trusts, not-for-profits, VAT groups, local authorities, and public corporations—have a six-month deferral until October 2020.
– April 2020
VAT-registered businesses with a turnover below £85,000 can continue to file their taxes in the usual way until April 2020. After this date, they too will need to start recording their transactions digitally, and filing VAT returns using MTD-compliant software. It’s also worth pointing out that, should turnover go above the threshold between April 2019 and April 2020, the business will need to move over to the MTD method of filing tax immediately.
– Post-April 2020
The government has outlined plans to introduce MTD for corporation tax and income tax in 2020. However, as yet there have been no detailed timings confirmed.
Exemptions to MTD
There are some businesses who may be exempted from the new regulations. These exemptions are the same as those for the current online VAT filing system—so, those who cannot engage digitally for religious or cultural reasons, or due to factors such as age, disability or a lack of internet access.
As mentioned above, VAT-registered businesses with a turnover of less than £85,000 are currently exempt, but this is due to change in April 2020.
Which software is compliant for MTD?
HMRC is not building its own system for filing tax under MTD; instead businesses will need to use an approved software package. Don’t panic, all of the major tax software providers such as Xero, Quickbooks, and Zoho are on the approved list.
You can check out the full list via the HMRC’s portal, here.
Getting further information about MTD
You can find more information on what MTD might mean for both your business and personal tax affairs on the gov.uk website. The official guide is well written and covers off all of the in-depth detail you’ll need.
If you’d rather have your business tax dealt with by a professional, take a look at our supplier listings. There, you’ll find a selection of the best accountants and business finance professionals in the UK.
If you’re looking for more tips and guides on running your business profitably and professionally, have a browse through our full list of resources here.
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