The government’s plan to digitise tax administration means Making Tax Digital (MTD) filing will be mandatory for all VAT-registered traders from April 2022. Continue reading to find what the planned extension to the rules will mean for you.
Making Tax Digital timeline of events
Since the 1st of April 2019, businesses with a taxable turnover that exceeds the VAT registration threshold (currently £85,000) have been required to keep their records digitally and submit their VAT returns via an interface with HMRC software.
However, from the 1st of April 2022, the programme will be extended to all VAT-registered businesses, regardless of their taxable turnover. From April 2023, taxpayers with an annual business or property income of more than £10,000 a year will also be required to follow the rules for MTD for Income Tax.
HMRC wants to make it as easy as possible for individuals and businesses to get their tax right, keep on top of their affairs and pay the correct amount of tax on time. The aim of going completely paperless and using a modern technology-based infrastructure will mean it is harder for taxpayers to avoid paying the correct amount of tax and will allow HMRC to intervene at an earlier stage.
Making Tax Digital for VAT
VAT-registered businesses with a taxable turnover above the VAT registration threshold of £85,000 must store records digitally and submit digital VAT returns. From April 2022, these rules will apply to all VAT-registered businesses. However, you can sign up to MTD voluntarily should you wish to before the deadline.
As part of MTD for VAT, you are required to keep the following records digitally:
- Business name, address and VAT registration number
- Any VAT accounting schemes you use
- The VAT on services and goods you receive, for example, everything you buy, lease, hire or rent (supplies received)
- The VAT on goods and services you supply, for example, everything you lease, sell, transfer or hire out (supplies made)
- Any adjustments you make to a return
- The ‘time of supply’ and ‘value of supply’ (value excluding VAT) for everything you buy and sell
- The rate of VAT charged on services and goods you supply
- Reverse charge transactions – where you record the VAT on both the sale price and the purchase price of goods and services you buy
- Your total daily gross takings if you use a retail scheme
- Items you can reclaim VAT on if you use the Flat Rate Scheme
- Total sales, and the VAT on those sales, if you trade in gold and use the Gold Accounting Scheme
To facilitate MTD for VAT, you’ll need either a compatible software package that allows you to keep records digitally and submit your VAT return to HMRC or bridging software that connects your non-compatible software (such as a spreadsheet) to HMRC systems. You can find further information about the software you can use on the government’s website.
Making Tax Digital for Income Tax
MTD for Income Tax will be compulsory from April 2023 if your taxable income from your self-employed business or income from property is above £10,000. You’ll need to keep digital records of all your business income and expenses and submit a final declaration after the end of the tax year it applies to. The final declaration will relace the self-assessment tax return. Although it’s not compulsory just yet, you can follow the rules voluntarily if all of the following apply:
- You are a UK resident
- You are registered for self-assessment, and your tax returns and payments are up to date
- You are a sole trader with income from one business only or a landlord who rents out UK property (or both)
Making Tax Digital for Corporation Tax
The consultation for MTD for Corporation Tax ran from the 12th of November 2020 and concluded on the 5th of March 2021; further information about the consultation is available on the government’s website. The extension of MTD for Corporation Tax will mean a significant change to the filing requirements and record-keeping for companies as they will need to:
- Store records of their income and expenditure digitally
- Provide quarterly updates of income and expenditure to HMRC using MTD compatible software
- File their annual Corporation Tax Return using MTD compatible software
These requirements will likely lead to companies and their agents having to make changes to their current processes and software.
Bluebird Accountancy is already supporting businesses in Making Tax Digital for VAT
Bluebird Accountancy is committed to supporting contractors and freelancers who may be affected by the changing legislation. Our accountancy software (FreeAgent) is already equipped to handle ongoing VAT reporting and ensure your records are stored and filed in line with MTD legislation.
Are you interested in finding out more about our limited company accountancy service? Please give us a call on 0808 301 2389, and one of our expert consultants will be happy to discuss your accountancy options with you.