Making Tax Digital – getting prepared
We have been waiting for some time for government to announce an extension to its Making Tax Digital (MTD) program; this they did last week.
What is MTD?
HMRC are keen to digitise the collection of information to calculate your tax liabilities. At present they are reliant on you submitting a variety of tax returns to do this.
MTD means that they will require you to link your data, your accounts information, directly with HMRC’s personal tax account in your name if you are an individual or your company’s tax account if incorporated.
Essentially, your VAT records and other accounts data will be summarised by your accounts software and sent to HMRC electronically once a quarter. In this way HMRC will build a picture of your current trading position and eventually, you will not need to file an annual tax return.
MTD and VAT
Presently, the majority of VAT registered traders with turnover above £85,000 (the present VAT registration threshold) are filing their returns using MTD approved software. From April 2022, this requirement will be extended to include all VAT registered businesses with turnover below the £85,000 threshold.
MTD and income tax
From April 2023, the accounting data of the self-employed and property letting businesses will need use MTD compliant software and file quarterly updates to HMRC. Initially, this will apply to those with business or property income in excess of £10,000 a year.
Many property letting businesses and smaller self-employed traders are used to preparing figures manually for their annual tax return. From April 2023, these traders will need to invest in converting to an approved electronic record keeping process.
Certainly, we are confident that the bookkeeping software we recommend clients use will be MTD compliant. We are currently filing MTD VAT returns and see no reason why this will not be successfully extended to include MTD filing of accounts information from April 2023.
Will be in touch with clients in the coming months to discuss actions that need to be taken in order to comply with these new regulations. Needless to say we will aim to minimise disruption for clients already stretched by COVID disruption.
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