Making Tax Digital is extending – are you ready?

If you’re VAT-registered or you submit a self-assessment income tax return, now’s the time to start preparing for the extension to Making Tax Digital (MTD).

Ensuring that the UK’s tax system runs effectively and remains up-to-date with advances in technology is a constant challenge, and the introduction of the Government’s Making Tax Digital initiative was intended to solve this issue by moving most taxation over to a digital model.

Making Tax Digital for VAT was launched in April 2019, and it made it compulsory for VAT-registered companies that met the £85k turnover registration threshold to comply with the MTD rules. It has met with success, so MTD will shortly be extended to cover all VAT-registered businesses, followed by all sole traders and property owners who submit a self-assessment income tax return.

But what does that actually mean for you and your taxes? We’ve summarised the key impacts and what you need to do to stay compliant with the MTD guidelines.

The Making Tax Digital system is already up and running for many VAT-registered businesses. But the extension of the initiative over the next two years is likely to bring a lot more UK businesses and individuals within the scope of MTD – and that means being ready.

How does Making Tax Digital (MTD) work?
In essence, MTD moves the recording of tax records and submission of tax returns away from paper and online returns over to a digital model. Businesses and individual taxpayers will need to keep digital records of their finances and will then submit quarterly returns in a digital format, direct to HMRC.

Who will be affected by the extension of MTD?
The MTD extension means that more businesses and individuals will now have to comply with the mandatory need for digital returns. According to the latest government briefing, this will mean:

• From April 2022, MTD will become compulsory for all VAT-registered business, including those below the £85k turnover threshold.
• From April 2023, MTD will become compulsory for all taxpayers who file income tax self-assessments returns for business or who have property income of more than £10,000 a year.

What do you need to do?
If you fall into either – or both – of the two affected categories, it’s prudent to start planning for the MTD extension as soon as possible. This means that businesses and individuals must:

• Keep digital records of their finances, along with all the relevant tax records.
• Use a relevant accounting software package that can connect to HMRC’s digital portal.
• Submit a digital tax return on a quarterly basis, directly to the HMRC portal.

For Ben Case, owner of decimal+ accountants in Newmarket, complying with the requirements of MTD is all in the preparation. ‘Here at decimal+ we’re busy helping our clients ensure they’re ready for the MTD extension by checking that they’re using a digital accounting system is configured correctly,’ says Ben. ‘For businesses that are operating in the digital domain, the whole process of submitting your VAT and self-assessment income tax returns becomes far easier to action. If you’re using a cloud accounting platform such as Xero, then you should already be primed and ready for MTD. If not, now’s the perfect time to switch from a paper-based system, or a desktop accounting set-up, across to the multiple benefits of cloud accounting. As your adviser, we can run you through the planning that’s needed for MTD compliance and can make sure your digital accounting system is fit for purpose and ready to submit returns. In fact, we’re a Xero Silver Champion Partner so we’re perfectly placed to help you tick all the MTD boxes.’

Decimal+ are accountants in Newmarket and Cambridge, and we’re helping our clients to prepare for the extension of Making Tax Digital. Why not contact us for an initial discussion?