What is Making Tax Digital?
Making Tax Digital (MTD) is the governments initiative to modernise and digitise the way UK tax is administered. Its aim is to increase the efficiency and effectiveness of the tax administration system in order to make it easier for businesses to get their tax correct. The long-term goal of the government is to simplify the taxation process and make tax management simple through a single digital account.
MTD is not a new concept, in fact the Chancellor announced “the death of the return” in his budget in 2015 and later that year the government set out its plans for MTD. Test projects were trialled prior to the introduction of MTD for VAT in April 2019 when all VAT registered businesses above the threshold were obliged to sign up.
MTD for VAT on the whole has been a great success and the vast majority of businesses required to be signed up for MTD VAT have done so. The governments feedback has generally been positive and they have numerous case studies for different industries that be accessed here.
In July 2020 the Government set out its plans to expand the scope of MTD.
April 2022 – All remaining VAT-registered businesses must sign up for MTD for VAT
April 2023 – All Unincorporated businesses (sole traders, partnerships etc.) and landlords with a turnover over £10,000 must sign up for MTD for Income Tax Self-Assessment.
What will this mean for the businesses in question?
HMRC estimate there will be 3.4 million non-VAT registered, self-employed sole traders or landlords with a turnover above £10,000 who will be required to use MTD for self-assessment when the time comes. These taxpayers will have to maintain their records digitally and file quarterly returns to HMRC through MTD compatible software.
What should I do if my business is going to be affected?
It depends on your current circumstance and the state of you record keeping. If you are already using MTD compatible software then there won't be much, if on the other hand you keep your receipts in a box on top of the wardrobe you may have a bit of work to do! The best advice is don’t delay, look at your bookkeeping process and look to have it transferred to MTD compatible software as soon as possible, at time of writing April 2023 is still over two years away, but with an estimated 3.4m other businesses who may need to do the same thing time is of the essence.
Not sure where to start?
Don’t Panic! There is still time, email Oakbank Bookkeeping to discuss our all-inclusive bookkeeping packages, info@oakbankbookkeeping.co.uk
For more information on the government's plans, their policy paper ‘Overview of Making Tax Digital’ can be accessed here.
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