Making Tax Digital

 

What is making tax digital? Also known as MTD, the government's programme for the future of taxation is based onusingdigital technology for tax records and returns.

Initially MTD started with VAT in 2019, and the next category of taxation to follow in 2023 is Income Tax Self Assessment (ITSA).You can find out more about MTD here.

Bookkeeper using calculator

Why has Making Tax Digital been introduced?

The answer is that MTD is a key part of the government's plans to make iteasier for individuals and businesses to get their tax right and keep on top of their affairs.

Making Tax Digital offers significant advantages for tax payers. 

  • MTD helps you keep your tax affairs right up to date
    With all relevant tax information available through your online account, tax payers will know about taxes they will need to pay at any time. As a result, business planning is easier and more effective.
  • You have fast, effective communication with HMRC
    MTD allows businesses and their accountants to access tax information online, and to improve the way they deal with HMRC.
  • It is easy to check the accuracy of HMRC records
    Businesses and their accountants have access to digital tax accounts and the information HMRC holds, making it straightforward to check the accuracy of records and resolve any issues.
  • Single financial account.
    MTD provides businesses with a single, accurate digital tax account which makes planning, reporting and returns faster and simpler. 

However, MTD requires the right software, the skills needed for the software, and an understanding of new reporting schedules. At AMR Bookkeeping Solutions, our experts can advise businesses about all the issues surrounding the new way of managing your tax affairs. 

What are Making Tax Digital deadlines?

Tax Who Taxable profit threshold When

VAT

VAT

VAT-registered businesses

All VAT-registered businesses

Over 85,000

N/A

1 April 2019

1 April 2022

Income Tax Self-employed and landlords Over 10,000 6 April 2023
Corporation Tax     April 2026

Making Tax Digital for VAT

The first requirement to use MTD came in 1 April 2019. Since then, all VAT-registered business with a taxable turnover above eighty-five thousand pounds have had to use HMRC's digital platform for their VAT records and returns. From 1 April 2022, the requirement will extend to all VAT-registered businesses.

The right software is critical to using MTD. At AMR Bookkeeping Solutions, we advise businesses on bookkeeping software for improving business bookkeeping. Our expertise covers solutions for MTD, including Xero, Sage and Quickbooks, and we provide training on leading accounting software. To comply with MTD rules, businesses need to use software which is compatible with HMRC for VAT returns. 

For more information on VAT, have a look through our guide. 

Our highly respected standards mean that clients can rely on us with absolute confidence, reflected in the many glowing testimonials we receive.

Making Tax Digital for Income Tax

The next stage in the roll-out of MTD is for Income Tax Self Assessment (ITSA). Using MTD will be obligatory from 6 April 2023 for unincorporated businesses (including sole traders) and landlords with total business or property income above ten thousand pounds per year.

You can register now for MTD if you currently complete Self Assessment returns for self-employment or income from property. You can see whether you meet HMRC's criteria for registration here. You will not be required to submit a return before April 2023, but it makes good sense to prepare well in advance and to get to know the software and processes.   

What are the Making Tax Digital rules for Income Tax?

 As with preparation for MTD and VAT, it is important to familiarise yourself with what to expect when Income Tax comes under MTD. The key points are that you need to:

  • Keep accurate records
    You must keep digital records of income, expenditure and all transactions relevant to your self-employment or property business.
  • Use Making Tax Digital compliant software
    You must use software that is compatible with HMRC. The tax authorities have a current list which will be amended in the run-up to April 2023.
  • Sign up for MTD for Income Tax Self Assessment
    Signing up for ITSA is straightforward. You do so using your Government Gateway ID and password.
  • Update your records every quarter
    From 6 April 2023, you will need to submit details of your annual income and expenses instead of a Self Assessment tax return. Tax owed needs to be paid by the end of the January following the end of your trading year.

You can find more information in our webinar on Making Tax Digital for Income Tax.

Making Tax Digital FAQs

What is Making Tax Digital?

HMRC states that MTD is about 'helping businesses to do their tax right'. MTD provides significant advantages for taxpayers and is also part of the government's approach to the problem of nine billions pounds of tax lost every year due to errors.

What are the advantages of MTD?

  • An accurate, up-to-date view of your tax position
  • Easy-to-access information in one place
  • Easy to share information with advisors, agents and HMRC
  • Better information and better planning

Who does Making Tax Digital apply to?

  • VAT-registered businesses with taxable profits over eighty-five thousand pounds from 1 April 2019
  • Vat-registered businesses with taxable profits of between ten and eighty-five thousand pounds from 1 April 2022
  • The self-employed and landlords for Income Tax Self Assessment from 6 April 2023. 

Are there exemptions from MTD?

Exemptions from Making Tax Digital are for: 

  • religious societies
  • individuals and organisations unable to use digital tools due to age, disability or remoteness
  • insolvency

How do you register for Making Tax Digital?

You will need compatible software and a Government Gateway User ID and password (if you don't have one, you can create one when you sign up). Click here for details of signing up for MTD for VAT, and click here for signing up to MTD for Income Tax Self Assessment.

Does HMRC provide free software for Making Tax Digital?

HMRC has no plans to provide free software for MTD. Our experts at AMR can provide advice on the right software for MTD returns for both VAT and Income Tax. 

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