Amid much fanfare, Making Tax Digital (MTD) launched in 2019. Back then, it only applied to VAT returns, and was only mandatory to companies with a turnover in excess of the VAT-registration threshold of £85,000.
In other words, if you voluntarily registered for VAT but were under the £85,000 threshold, there was no requirement to comply with MTD for VAT.
That changes in 2022/23.
If applicable to you, from your first UK VAT return on or after April 2022, you will need to follow MTD for VAT rules regardless of your turnover.
As it happens, many companies in this situation are already following the rules. This is because, if you are using modern accounting software like Xero or QuickBooks, it is really easy to do – not much more than a few clicks (and paying the bill, of course!).
What is Making Tax Digital?
MTD is a government scheme to digitise the way all UK taxes are paid. It stems from the Treasury believing it lost £8.5 billion between 2018 and 2019 due to avoidable mistakes from taxpayers.
Not only is that costly to the Exchequer, it’s also a time drain and significant expense to businesses when they have to investigate and rectify any mistakes on their tax returns.By sending the information via direct digital transfer, there is zero chance of transposition errors.
Moreover, improved record-keeping within accounting software, along with prompts and guidance that these programs provide, cuts down on other forms of mistakes that might be made.
With so much to gain, you’d imagine that HMRC will roll out MTD beyond VAT. And that is exactly what they plan to do, starting with income tax.
Making Tax Digital for sole traders & landlords
The next key date on the MTD timeline is 6 April 2024.
At this point, self-employed businesses (sole traders) and landlords whose annual business or property income exceeds £10,000 will fall within its scope for their income tax obligations.
Of course, you’ll need software with MTD income tax functionality to be able to do this. Some providers are already available, and many more will come to the market before 2024.
The software must be able to:
- maintain digital records in line with MTD
- prepare and send quarterly updates and end-of-period statements to HMRC
- complete your business income
- submit your declaration at the end of the tax year
- communicate with the HMRC API platform.
Making Tax Digital for partnerships
The rollout continues on 6 April 2025 when general partnerships generating an income over £10,000 a year will have to follow the MTD rules for income tax.
This is specifically partnerships which only have individuals as partners and each is jointly liable for partnership debt without limit.
We await confirmation of when other forms of partnership will be required to comply.
Help with Making Tax Digital
As always, we are here to help: whether you need to get ready for a few years’ time or a few months’.
It’s worth noting, too, that many businesses seek to comply before they are legally required to. This is because it is such an efficient way to work, once you have the software set up.
If you have any questions about getting started or ongoing compliance, please get in touch.