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Tag: Making Tax Digital

Making Tax Digital in UK

Everything About Making Tax Digital in the UK?

Introduction

Are you familiar with Making Tax Digital, often abbreviated as ‘MTD’? Essentially, MTD constitutes the government’s strategic initiative to transition towards a fully digital tax system, aiming to enhance the ease with which individuals and businesses manage their tax obligations and stay in control of their financial affairs. However, MTD encompasses more than simply shifting the process of filing your self-assessment tax return from manual to online.

A substantial component of MTD revolves around the imperative to maintain a digital record of your accounts. As this initiative comes into full effect, compliance will necessitate the utilization of reputable third-party accounting software to seamlessly submit your tax return. The announcement of MTD’s phased implementation was made in 2017, with the initial rollout scheduled for April 2019. Now, with the recent commencement of the next phase in April 2022, it becomes crucial to delve into the specifics of what MTD entails and why it holds significance in the realm of taxation and financial management.

Taxpayers who are affected by MTD?

The impact of Making Tax Digital (MTD) extends to millions of taxpayers, encompassing a broad spectrum of businesses, self-employed individuals, sole traders, and those operating through limited companies. This comprehensive initiative signifies a significant shift in the way taxation is managed and reported, with its reach extending across various sectors and professional structures. As MTD continues to be implemented, it becomes imperative for a diverse range of entities and individuals to adapt to the digital landscape, ensuring compliance with the evolving tax framework.

What are the timelines for MTD rolling out?

The inception of Making Tax Digital (MTD) commenced with the first phase in April 2019, followed by another significant phase in April 2022. Looking ahead, additional phases are scheduled to be progressively introduced in the coming years. This phased approach to implementation reflects the deliberate strategy employed by the government to integrate MTD into the tax system gradually. As businesses and individuals navigate these timelines, it becomes crucial to stay informed about the specific requirements and implications associated with each phase of MTD.

MTD for VAT businesses

Phase one of Making Tax Digital (MTD) was dedicated to MTD for VAT. This entailed a significant shift for businesses registered for VAT and having a taxable turnover exceeding £85,000 (the VAT threshold). Under MTD for VAT, these businesses are required to maintain digital records of their accounts and employ specific software for the submission of their VAT returns.

Until April 2022, businesses with a turnover below the VAT threshold had the option to adopt MTD voluntarily. However, as of April 2022, compliance with MTD for VAT has become mandatory for businesses falling under the VAT threshold. This evolution in the MTD framework underscores the government’s commitment to a comprehensive and digitalized approach to VAT reporting and signifies a critical milestone in the ongoing progression of Making Tax Digital.

MTD for Income Tax

Commencing from April 2024, Making Tax Digital (MTD) will extend its application to encompass the self-employed and landlords with an annual income surpassing £10,000. If you fall into this category, adherence to MTD regulations will necessitate the maintenance of digital records, followed by the electronic filing of your accounts and self-assessment returns.

For those involved as partners in a business, compliance with MTD rules becomes obligatory starting from April 2025. This marks a pivotal moment for partners, as the government seeks to progressively integrate digital processes into income tax reporting.

As of now, the government has yet to stipulate a specific date for when limited liability partnerships (LLPs) and partnerships with corporate partners will be mandated to adopt MTD rules. Rest assured, we will keep you updated as soon as this information is announced, ensuring you remain informed about the evolving landscape of Making Tax Digital.

MTD for Corporation Tax

Following the implementation of Making Tax Digital (MTD) for Income Tax, the anticipated next phase is MTD for Corporation Tax. Although not officially confirmed, the government plans to offer businesses the opportunity to participate in a pilot program for MTD for Corporation Tax. This significant development is projected to take effect in April 2026, indicating the government’s commitment to gradually expanding the scope of digital tax reporting to include Corporation Tax. As the specifics of MTD for Corporation Tax unfold, businesses are encouraged to stay informed about potential changes in the tax reporting landscape.

HMRC-compatible third-party software for MTD

The advent of Making Tax Digital (MTD) signifies a shift towards a future where all taxpayers will be required to utilise third-party software for the submission of their tax returns. Essential to this process is the compatibility of the software with HMRC’s technology. Recognized software providers such as FreeAgent and Sage have integrated their systems to align seamlessly with HMRC’s requirements. For a comprehensive overview of compatible software, HMRC has provided an official list, ensuring that taxpayers have access to a range of options that meet the necessary standards for digital tax reporting.

Are CIS workers impacted by MTD?

In the foreseeable future, Making Tax Digital (MTD) is slated to extend its application to encompass individuals who complete a self-assessment, and this includes Construction Industry Scheme (CIS) workers. As MTD unfolds, CIS workers should remain vigilant and stay informed about the evolving requirements.

For those VAT registered, adherence to MTD rules becomes crucial when filing quarterly VAT returns. It is imperative to ensure compliance with the specified digital processes in line with MTD regulations.

If you are not VAT registered, you have until April 2024 before the MTD framework is fully implemented as part of the gradual roll-out of MTD for Income Tax Self-Assessment (ITSA). This timeframe allows non-VAT registered CIS workers to prepare for the upcoming changes and transition seamlessly into the digital tax reporting landscape.

Summary

In summary, the government is actively working towards a fully paperless tax system through the implementation of Making Tax Digital (MTD). Even if MTD hasn’t directly impacted you at present, it’s wise for CIS workers to consider future-proofing their business by staying informed and prepared for potential changes on the horizon.

For those seeking to optimize their tax rebate, we invite you to get in touch. Give us a call at 0161 464 6067, or simply contact us on our website. Our team is ready to assist you in navigating the evolving landscape of tax regulations and ensuring you make the most out of your financial arrangements.

 

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