A Very Quick Overview Of Making Tax Digital
Initially, MTD (Making Tax Digital) was rolled out for VAT registered businesses. Self-employed businesses and landlords with annual business or property income collectively above £10,000 will need to follow the rules for MTD for Income Tax from their next accounting period starting on or after 6 April 2023.
Read On! - You can't afford to ignore this or fail to plan for it.
What Is MTD?
Making Tax Digital is the new tax system. It places new requirements on you for better record keeping and more frequent tax submissions.
When Is It?
For the self employed and landlords it will take effect on 6 April 2023.
Don't wait until then, it will be too late, prepare now!
Whereas you may have dealt with an accountant once per year (and perhaps late at that!) you now have to deal with them 5 times per year and on time.
To avoid multiple fines occuring, you will now need to be very disciplined about your paperwork and work with an accountant more closely.
How Is Making Tax Digital Different To The Current Method?
Here are the key differences between MTD and the current tax system:
- Paperwork etc now needs submitted quarterly not annually
- Providing bank data is now mandator
- Electronic backup info (i.e your book-keeping) now needs to be dynamically linked to submissions (i.e all totals are now electronically linked to the backup data with no manual intervention).
- Manual ledger books, spreadsheets etc are now redundant, MTD compliant software must be used
- Instead of working out your tax at the end of the year, you will now see your estimated tax bill each time you update the MTD system. (However this does not include year end adjustments such as capital allowance claims etc)
- In addition to the submission being quarterly (instead of annual) a further annual submission is required, this is called an EOPS (End Of Period Statement).
- A new electronic document called a "Final Declaration" will need to be made testifying the submission is true and correct.
Making Tax Digital Deadlines
MTD is being introduced by HMRC in planned phases. These are the relevant dates for rolling out MTD:
- April 2019: VAT-registered businesses with a taxable turnover above the VAT threshold of £85,000 need to keep digital records and submit digital VAT returns using compatible software. Some 'more complex' businesses were given a six-month deferral (read more below)
- October 2019: more complex businesses who were deferred need to comply with Making Tax Digital
- April 2022: MTD will be compulsory for businesses with a turnover below the £85,000 VAT threshold
- April 2023: MTD will apply to taxpayers who file Income Tax Self Assessments for business or property income of more than £10,000 a year
How Do I Prepare For MTD?
- The days of sole traders getting a calculator out, adding up some numbers and entering them into a box on their tax return are gone. You now need MTD compliant software and the knowledge in how to use it. In reality, this means use an accountant, they are well versed in this!
- Get into the habit of keeping every bit of paper, excuses for missing paperwork will now normally translate as higher tax bills. If you excused yourself previously for "being bad with the paperwork" now is a good time to get htis in order and be prepared for MTD.
- Ideally, dispense with cash in your business, have customers pay you electronically and pay your suppliers electronically as well. Electronic payments greatly aid reconciling your accounts and make MTD much smoother.
- The MTD scheme requires you to enrol into it, this takes time so work closely with your accountant ahead of time to be prepared for it.
How Will This Affect Accounting Fees?
Lets consider how accounting fees might be affected by MTD:
- Instead of your accountant dealing with you annually, it will now have to be quarterly or more often
- Undertaking a job in 4 separate sessions uses much more time than one single session
- The amount of processing will increase in most cases
- Query resolution will likely increase impacting times and therefore fees
At this stage, there is no definitive on how much prices will rise, but its most likely acocuntants all over the UK will be forced to raise fees to cover the extra work. We will update further on this once the scheme becomes clearer.