Focus on Tax: What is MTD?
MTD stands for Making Tax Digital, and in simple terms is changing the way you send your tax information to HMRC, from manual paper-based methods to digital submissions.
MTD is mandated by HMRC, so unless you have an exemption you will have to get onboard or face fines.
With many businesses already adopting digital methods of transacting with customers, managing their business and maintaining their accounting records the move to MTD could be smooth, as long as you’re prepared and know what you need to do and when.
Why is MTD happening?
Businesses are seeing the benefits of digitising their processes, with greater customer reach, increased speed and reduced costs when carrying out transactions, plus access to real-time information to help them make decisions. Millions of businesses are already banking online, paying bills online, and using accounting software.
HMRC is no different to any other business, they want to see the benefits of digitisation, with their aim to become one of the most digitally advanced tax administrations in the world.
MTD is their tool to deliver on this aim. They want to make tax administration processes more effective, more efficient and easier for taxpayers to get their tax right.
The move to digital tax administration will eliminate many of the existing paper-based processes, reducing errors and allowing businesses to devote more time to running their business.
What’s changing, who does it apply to and when?
MTD is being implemented in phases, focusing on different taxes and types of business:
MTD for VAT
MTD for VAT went live in April 2019, with the majority of VAT-registered businesses with a taxable turnover above the VAT threshold (£85,000) mandated to keep digital VAT records and send returns using compatible software.
From April 2022 these requirements will apply to all VAT-registered businesses. This means business owners who charge VAT with a turnover below £85,000 will need to comply with MTD or they could be hit with VAT surcharges and penalties from HMRC.
Around one million small businesses will be impacted by this change, which is now only 2 months away.
MTD for Income Tax Self Assessment (ITSA)
MTD for ITSA will apply from April 2026 for people who are self employed and landlords with total business or property income above £10,000 per year.
This will be a significant change for many soletraders, as not only will it mean a shift to digital record keeping, HMRC will also require information to be submitted quarterly replacing the single self-assessment process.
Most businesses will have 2 years to prepare and some will be eligible to test the service voluntarily prior to its introduction.
MTD for Corporation Tax (CT)
MTD for CT will be coming too but as yet there is no set date for implementation, but HMRC have confirmed it will be no earlier than April 2026.
How do I ensure my business is ready for MTD?
The key is to get ahead of the requirements and timings that impact your business – see HMRC’s guidance here.
Review your business processes and research digital software options - the move to digitising your records and transactions could be a game-changer for moving your business forward.
If you need support speak to your accountant to advise on how you can get prepared.
Reminder: from April 2022 MTD for VAT will apply to all VAT registered businesses - 2 months to get ready!
Need help? Contact Scotch Accounting today.
We help businesses migrate their accounting records to digital accounting software, which not only creates significant efficiencies but also ensures they are MTD compliant.
If you would like to learn more about how we can help you then book your free discovery call here.
Simple, clear and proactive services focused on driving your business forward.
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