Making Tax Digital (MTD) requires taxpayers to maintain electronic records and ‘communicate’ with HMRC digitally. Now is the time to look ahead and prepare for the next stages of the MTD programme.
Making tax digital for VAT
VAT-registered businesses whose turnover is in excess of the VAT registration threshold of £85,000 are already within MTD for VAT and must keep digital records and file their VAT returns using MTD-compatible software. The requirement for links between different stages of the process, for example, from the records to the return, to be fully digital has been delayed – it was due to take effect from April 2020, but will now apply for VAT return periods starting on or after 1 April 2021.
While it is currently acceptable to cut and paste information from one application to another, for new VAT return periods starting on or after 1 April 2021, the links must be digital. This means, for example, using linked cells in spreadsheets, exporting, downloading and uploading files, automated data transfer or using a single API-enabled software package. HMRC have, however, promised a ‘soft landing’ as regards the imposition of penalties.
VAT registered businesses whose VATable turnover is below the VAT registration threshold of £85,000 can currently choose whether to join MTD for VAT voluntarily or remain outside it. However, MTD for VAT will become mandatory for all VAT-registered businesses from April 2022.
Speak to us about what the changes to MTD for VAT mean for you and what you need to do to prepare.
MTD for income tax
Making tax digital for income tax will apply initially to unincorporated businesses and landlords with, respectively, business income or income from property of more than £10,000 a year. It is due to be introduced for accounting periods beginning on or after 6 April 2023.
Under MTD for income tax, taxpayers will need to send quarterly summaries of income and expenses to HMRC using MTD-compatible software. An end of year finalisation process will enable other income and reliefs to be taken into account so that the final tax position for the year can be determined. This process will eventually replace the self-assessment tax return.
Businesses and landlords will need to keep electronic records of income and expenses to comply with the requirements of MTD for income tax.