Making Tax Digital for Business – how it will affect you
Posted on 8th September 2020
HMRC plans to introduce Making Tax Digital for Business (MTDfB) to small companies from 2022. We don’t have all the details yet, but here are some important things you should know.
MTD arrangements that are already in place
HMRC introduced the personal tax account in 2015. This is an online tax account where you can manage your tax affairs.
The first phase of Making Tax Digital (MTD) for VAT was launched in 2019, which involved keeping digital records and using compliant accounting software to complete your VAT returns. This included a requirement to replace any manual links between digital records with digital links.
Originally, most businesses had until April this year to have the digital links between records in place, although for some businesses the date was 1 October 2020. Because of the pressures the coronavirus outbreak placed on businesses, the deadline has now been extended to your first VAT return period on or after 1 April 2021.
What is MTDfB?
HMRC wants almost all unincorporated businesses and self-employed private landlords to keep digital records. If your business is in these categories, MTDfB will mean you must file regular updates, at least quarterly, for your income and expenditure using compliant software.
When will MTDfB be introduced?
The government wants to continue with MTD as soon as possible and is currently planning to start the next phase for businesses in April 2022. However, to be ready to meet the new requirements, you will need to start your preparations in the next 18 months. At the moment the plans look like this:
Autumn 2020 - the government says it will consult on the details of extending MTD to incorporated businesses with corporate tax obligations.
From April 2021 - HMRC says it will give self-employed people time to plan and to allow software providers an opportunity to introduce new products.
VAT-registered businesses must have digital links between their records to meet the MTD for VAT requirements.
The existing pilot MTD for income tax service will be expanded so that you can test the whole process.
From April 2022 - businesses with VAT-able turnover below £85,000 that have voluntarily registered for VAT will also have to keep digital records. Their VAT returns will have to be submitted using MTD-compliant software.
From April 2023 - from the first day of your annual accounting period for the 2023/24 tax year MTD for income tax will be a requirement. If you have an annual turnover above £10,000 from self-employment or property this will apply to you. It will also apply to partnerships and trusts.
Why introduce MTDfB so soon?
The government struggled to provide fast and fair support for small businesses and self-employed people during the coronavirus outbreak. It says that this has highlighted the importance of near-real-time data and a more up-to-date overview of taxpayers’ financial positions.
If MTDfB had been in place, the government says it would have had a more accurate picture of trading and profit levels and could have targeted support more effectively.
The government also says that earlier registration and information would have helped to support those who had recently set up in business, with less risk of fraud.
If you would like to start preparing for MTDfB, we’ll be happy to help. Just get in touch.
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