Making Tax Digital - where are we?
Making Tax Digital (MTD) is HMRC’s pet project that was embarked upon to ‘end the tax return’ and digitalise tax by 2020. With various software issues, implementation delays and of course Covid this deadline is a moving feat.
The actual principal of what is to be achieved is actually very sound and sensible, the approach to implementing it has, in my humble opinion, not been!
Stage 1 – MTD VAT for SMEs (Partially completed)
The first stage was getting VAT for SMEs up and running. This required a lot of business who currently didn’t use software to start using software. This was HMRC’s first mistake…. Why not start with the large companies that already have software?
However they didn’t and, after some delays, this stage is completed with all SMEs over the VAT registration threshold now on MTD (if you are not or will soon be going over the threshold please do speak to us).
Companies registered for VAT under the VAT threshold (£85,000) can be registered for MTD but do not have to. They will however have to from their first VAT return due on or after 1 April 2022.
Stage 2 – MTD VAT for large companies (slightly delayed)
The second stage was due to be fully implemented by 30 June with large companies having to compliant with all the correct digital links by their first VAT return from 1 April 2020.
Most companies will now be there or there about with it all. HMRC have however pushed this deadline back to 1 April 2021 due to the Covid pandemic. With companies operating with reduce staff and the additional pressure on finance teams and final implementations may have proved problematic.
Stage 3 – MTD for Income Tax
The next stage of MTD is getting income tax up and running and strides have already been made in this area with more businesses using accounting software as a result of MTD VAT and the introduction of bank feeds to most commonly used accounting software.
Self-employed businesses and landlords with income over £10,000 (sales not profit) will need to follow the rules for MTD for income tax by 6 April 2023. For self-employed businesses that are MTD VAT compliant this will be an easy switch.
The challenge if for those self-employed businesses and landlords who are not, especially those who leave their tax returns to the last minute (you know who you are!). The introduction of MTD for income tax will require a change in approach those it impacts in terms of how they keep their records and frequency of which they are updated.
There is good software already out there that can be paid for depending of course on your needs.
There is an additional change that has already come into effect for the landlords who sell their property in the form of real time reporting, and paying, for capital gain tax. You can read more about the changes here.
So what do I need to do?
If you are over the VAT registration threshold of £85,000 and not yet registered for MTD VAT please do get in contact. Likewise, if you are voluntarily VAT registered and would like to get MTD ready we can assist.
If you are self-employed or a landlord and have any queries or concerns about how these changes will impact you, please get in contact.