The Digital Age
Making Tax Digital (MTD) - What is it?
'MTD is 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.
HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world. Making Tax Digital is making fundamental changes to the way the tax system works – transforming tax administration so that it is:
easier for taxpayers to get their tax right'
Put simply, it is a digital way to send your financial information to HMRC every quarter.
Who does it affect?
- MTD currently affects businesses who are VAT registered and must be using MTD compliant software to avoid penalties from HMRC.
- The next stage of MTD for income tax self assessment (ITSA) is scheduled for 6th April 2024 and will apply to self-employed businesses and landlords with an annual business or property income above £10k. Make note the figure you need to keep an eye on is the income, not profit.
- Partnerships with an income of more than £10k will need to sign up to MTD 6th April 2025.
- MTD for corporation tax are not mandated to sign up before 2026.
How will it work?
Currently, for VAT registered businesses, MTD is part of the submission of quarterly VAT returns, so not extra work is required by the owner/bookkeeper/accountant.
However, when MTD ITSA comes into play from April 2024 (assuming the government does not reschedule this again), as most self employed and landlords will be under the threshold, quarterly reporting to HMRC will be new territory for the business owners.
Requirements will be: report to HMRC the business financial figures every quarter and then again at then end of the financial year when all the figures have been finalised (usually by the accountant).
What software do I need to use for MTD?
Despite what the software companies may tell you, you don't actually need to subscribe to an accounting software to be MTD compliant.
Using an accounting software has it's place and can make running your business so much more manageable, especially if you have a high transactional business.
However, I advise my smaller new start up clients to continue using a spreadsheet and when the MTD reporting deadline comes they can purchase bridging software. This is much more cost affective.