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Making Tax Digital means a direct, real time link between your business books and HMRC. Is your business ready for that?
What is Making Tax Digital (MTD)?
MTD is the governments initiative to go paperless. For businesses it means keeping digital records and using compatible accounting software to transmit data to HMRC. Eventually, keeping paper records won't meet the requirements of tax legislation. HMRC describe MTD as a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs.
MTD was originally announced in 2015 and so far only VAT is in scope for businesses whose turnover is over £85,000 (VAT registered businesses with turnover under £85,000 can opt in). But the intention was always to extend this to other taxes.
What's next?
In September 2021 the Government revised it's timeline for the further roll out of MTD as follows:
April 2022: All VAT registered businesses will be required to comply with MTD
April 2024: Self-employed businesses and landlords with annual business or property income above £10,000 will also need to follow the rules for MTD
As yet there is no announced timeline for companies paying corporation tax
What do I have to do?
Businesses and landlords will need to send a quarterly summary of their business income and expenses to HMRC via MTD-compatible software. In response they will receive an estimated tax calculation based on the information provided to help them budget for their tax. At the end of the year, they can add any non-business information and finalise their tax affairs using MTD-compatible software. This replaces the need for a Self Assessment tax return.
You must start keeping your business records digitally and get into the habit of keeping them up to date at all times (if you're not already!). If you already use software to keep your business records, you will need to check it's compatible for the new requirements. If you don’t use software yet, or your software is not MTD-compatible then you’ll need to consider what software, or bridging software, is most suitable for you.
How we can help
Accountants will play a key role in making sure their clients are MTD ready. In the first step helping clients identify the most suitable MTD compatible accounting software for them, helping them migrate and start using it effectively, and checking in at regular intervals to ensure that information transmitted to HMRC is at all stages complete and correct.
At Jane's Accounting Services we are big fans of Xero and can also help with Quickbooks - two of the biggest current MTD compatible accounting software packages. Many of our clients are already using these to keep digital records. These and other suppliers will now be busily developing their products in order to be ready for the extension of MTD to Income Tax. We will be watching closely so that we can help our clients be early adopters of the very best solutions.
Please get in touch to find out more
The information contained within in this article is provided for informational purposes only and is not intended to substitute for obtaining accounting, tax, or financial advice specific to your own circumstances from your own adviser.