Making Tax Digital has become a requirement for most businesses, so it’s essential that you understand what it is, how it works, and what you need to do. That’s where this handy guide will help.
The Making Tax Digital initiative
As the world has moved more and more online, it’s become clear that there are great operational and other advantages to doing things digitally. The UK government also recognized that most businesses were keeping records and making transactions almost entirely digitally. Her Majesty’s Revenue and Customs (HMRC) introduced the aim to become “one of the most digitally advanced tax authorities in the world.” This is the origin of Making Tax Digital. An effort to fully digitize the tax and VAT filing process.
The timeline for MTD
The roll-out began in 2019 for a small selection of VAT-registered businesses that met the required annual revenue threshold. This was, and still is, currently set at £85,000. This public beta was successful, and the program has subsequently rolled out to most businesses at this time.
Now, there is a deadline of April 2022 for all businesses that meet the threshold to be registered and compliant with MTD. Then, in two years, it’s time for sole proprietors as well as landlords who have an annual income of more than £10,000. General partnerships that also meet this threshold will be required to be MTD-compliant by April 2025. It’s also currently planned that MTD for Corporation Tax will be mandatory by April 2026. Of course, all these potential dates may still be subject to change.
The fact is that MTD has so far been highly successful with over 1.4 million businesses currently registered and compliant.
Submitting a VAT return with MTD
As mentioned above, it will soon be mandatory for businesses to submit VAT returns using MTD-compliant software. This enables companies to send their data straight to HMRC directly from their digital records.
It won’t be a surprise to hear that some businesses still prefer to use spreadsheets to keep track of and store their VAT information. To accommodate for this, HRMC allows the use of bridging software that can connect to spreadsheets then submit information directly from them.
When you are ready to submit and file a return, you will need to ensure that you have the following information at hand: a business name and contact information, a VAT number, details of any schemes utilized, VAT on supplies made and received, adjustments to returns, the time of supply (tax point), the rate of VAT charged on supplies made, reverse charge transactions, and assets purchased for which you are eligible for a tax refund.
Tax returns for the self-employed
While the focus has been on getting MTD for VAT returns running smoothly, there has been a public beta for MTD for sole traders and landlords since March 2018. This has focussed on a small, select group of qualified sole traders and landlords and has not yet been broadly rolled out. At the moment, there’s still no information on when this will be widely deployed.
As mentioned above, MTD will apply for the self-employed and landlords who have an overall annual income of £10,000 and above. IF you have adopted MTD for income tax, you will start submitting a return every quarter rather than just one per year. Your overall tax will only be calculated after the submission of your fourth and final return for the financial year. It is at this point that you will be able to claim back for any allowances or qualified tax breaks.
