On 1st April 2019, HMRC introduced the first phase of its new digital tax initiative, known as Making Tax Digital (MTD).
It’s designed to do what it says on the tin: turn tax into an entirely digital process for businesses.
For many firms, this has always been something they’ve been either striving towards or putting off for as long as possible, but MTD is forcing their hands. This is thanks to a number of deadlines which are fast-approaching.
In today’s blog, we’re going to look at the next round of MTD dates which might impact your business. But don’t worry – we’re with you every step of the way!
What is ‘Making Tax Digital’?
It’s been a while since MTD was first announced, therefore it’s definitely worth a quick reminder of what it’s all about.
In HMRC’s own words, MTD is designed to make it “easier for individuals and businesses to get their tax right and keep on top of their affairs”. It centres around digital tax records and tax returns and has the overall goal of businesses going completely paperless.
It’s important to note that HMRC has form for this; they introduced the personal tax account in 2015, which was designed to make it easier for people to manage their tax affairs. On the whole, it’s worked out pretty well and has led to most people going paperless for their personal tax.
Now, it’s the turn of companies, be they large, small or sole trader.
Previous MTD deadlines
There are a couple of important MTD deadlines which have already passed.
- In April 2019, all VAT registered businesses with a taxable turnover above the £85,000 threshold were required to keep digital records and submit digital VAT returns. A six-month deferral was given to some ‘complex’ businesses.
- October 2019 was when the aforementioned complex businesses finally needed to comply with MTD.
The two deadlines above placed a great deal of focus on the software being used by the affected companies. Those that were relying on spreadsheets or old accounting software arguably faced the greatest hardship in switching to an MTD-compatible platform.
But there was also a significant degree of pressure on the developers of such software to get their own affairs in order, and link up with HMRC.
Now that we’re in 2021, there are a couple more deadlines which you might need to be aware of, depending on your business’s size and personal circumstances.
Upcoming MTD deadlines
There are two upcoming dates to be aware of for MTD. And as we all know with how fast time moves, they’ll be here before you know it.
The first is April 2022. This is when HMRC expects all VAT registered businesses with taxable turnovers below £85,000 to switch to digital accounting and VAT return systems. So, essentially, that means all remaining VAT registered businesses will need to get their systems and processes MTD-ready.
The second date is April 2024, when self-employed people and landlords with an income of over £10,000 per year will need to become MTD compliant. This will arguably have one of the biggest impacts so far, as there are an estimated 811,000 self-employed workers in the UK.
When it comes to corporation tax, MTD will not be made mandatory until 2026, but the government is running pilot schemes.
What do I need to do?
The most important component of MTD is, without question, the accounting software you use.
The good news is that all major accounting software developers have updated their platforms to support HMRC’s MTD services. So, if you’re using software at the moment for accounting, double check with the provider to see if it’s MTD ready. If it is, you’re in good stead.
If it isn’t – or if you’re using paper-based records or an Excel spreadsheet – you’ll need to move wholesale to an MTD-compatible accounting platform, sharpish. There are plenty of options out there, but we recommend Xero and it’s brilliant integration with Hubdoc.
Your internal processes will probably need to adapt to MTD, too. And this is admittedly where things can get a little tricky – particularly if those processes have been present for many years. The good news is that help is available.
Still need help?
We totally understand that MTD is a bit of a pain in the you-know-what for many businesses. It’s why we’ve helped countless firms get ready for MTD and ensure it doesn’t become the burden they fear in might.
We can help you, too. So, if you want to talk about all things Making Tax Digital with a team who knows it like the backs of their hands, just get in touch with us here at Trinity, today.