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18th January 2022

What is Making Tax Digital (MTD)?

In short, MTD is the Government transforming tax administration into a digital reporting and payment system to make it more efficient, effective and easier to get right with fewer mistakes.
The rollout of the transformation is happening in stages, VAT being the first tax to be reported via the new digital system, followed by Income Tax and finally Corporation tax.

MTD for VAT

First to be falling under MTD rules from April 2019 were VAT registered businesses with an annual turnover exceeding £85,000. The requirement is to store and submit records via an HMRC approved third party software, which these businesses have been using ever since.

Joining them from April 2022 will be the rest of all VAT registered businesses to complete the MTD rollout for VAT.

Thankfully, approved third party software has been widely available and mainly come from accounting software providers, boosting the popularity of cloud accounting solutions.

Businesses must keep digital records of their:

  • VAT registration details and the VAT scheme
  • Output (supplies made), input (supplies received) dates, values and VAT applied
  • Reverse charge transaction details
  • Details of items you can reclaim VAT on if you use the Flat Rate Scheme

If you have a reputable accountant by your side, you should not be affected much by MTD as they would take care of your VAT submissions like before, but now under the new rules.

In fact, if you’ve recently started using cloud accounting software due to the changes, you may find dealing with your company admin has just become a bit easier.

Income Tax (ITSA) and MTD

The subsequent tax to go under the MTD treatment will be Income Tax. Originally planned to be introduced in April 2023, but recently delayed until April 2024 to allow for ample time to prepare after the recovery for those affected by the Coronavirus pandemic.

MTD for ITSA will apply for individuals, partnerships and trusts with a total annual gross income or turnover exceeding £10,000. The keyword here is “total”, so multiple income streams must be summed up before determining if MTD rules apply.

MTD’s most significant change to individuals and businesses mentioned above is that instead of an annual Self-Assessment return, they will now have to report figures quarterly with an added end of period statement (EOPS) and a final declaration.

Per MTD rules, individuals will have to:

  • Keep digital records of business income and expenses for each type of revenue
  • Send quarterly updates on each revenue stream
  • Submit an end of period statement (EOPS) for each source of income with a final declaration

There is a pilot scheme, and it is possible to sign up for MTD individually or prepare by using compatible third-party software from April 2024.

Again, just like with VAT, the accounting industry is preparing for the rollout of the new rules, and if you are using one of the leading accountancy software, you should be fine.

If you are working with an accountant, they will be ready to submit those regular updates with little or no added admin for you when the time arrives.

MTD for Corporation Tax

The Government has recently concluded consultations on Making Tax Digital for Corporation tax design and confirmed that they will not mandate the use of the new system until April 2026.

Details have not yet been announced, so there is still time then for the three million businesses affected by the new rules, which will likely include similar quarterly figures reporting.

How Can MyAccountant Help?

Our philosophy has always been to provide a simple and easy accounting solution where we take over the burden of running a business from our clients as much as possible. That means less for you to worry about.

As we continue to adapt and take care of tax reporting for our clients, they will not notice these changes. We employ accounting solutions that are capable and ready to deal with HMRC’s new reporting requirements.

If you are a freelancer, sole trader, contractor, or small business owner, get in touch with us and see how we can help. Our clients have access to a dedicated bookkeeper, a qualified accountant, and an award-winning cloud accounting software, all included in our fixed priced monthly packages.

We hope you find this article informative and helpful. To get notified when we publish a new guide or article, please follow us on LinkedIn, Twitter or Facebook. Our ethos is quality over quantity, so we promise not to crowd your social media feeds with less than valuable content.

 

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