Making Tax Digital (‘MTD’) is the first phase of HMRC’s 10-year plan to introduce a modern, digital tax service. From a business’s point of view MTD, the introduction of MTD means that the business will have to keep all of its records (although initially only VAT records) digitally and use MTD compatible software (software that is able to meet all the demands of the new MTD rules) to submit their VAT returns.
MTD for VAT
VAT-registered businesses with taxable turnover above the threshold (£85,000) have been operating MTD since April 2019, and for the majority of those businesses the service is working smoothly.
In July 2020 the government announced its intention to roll out the extension of Making Tax Digital and for all VAT periods starting on or after 1 April 2022. All VAT registered traders will have to use MTD compatible software to file their VAT returns and they will also be required to keep the VAT records in a digital format.
MTD for income tax
The 2020 budget also included the announcement that from April 2023, businesses and landlords with business income over £10,000 per annum which are liable for Income Tax will need to keep digital records and use software to update HMRC quarterly through Making Tax Digital.
This extension of Making Tax Digital should not create any additional tax liabilities for businesses, nor for the time being should it change when tax is paid by businesses or landlords in scope of the extension.
MTD software will be at the core of the changes. For many businesses it may simply be an upgrade of existing software but for others it may mean a transition from manual bookkeeping to digital accounting.
There are a wide range of Making Tax Digital software products available already, including free products and businesses can choose a product that suits both their budget and their needs, from basic products that ensure Making Tax Digital compliance to highly sophisticated accounting systems.
At McAleer Jackson, we have strong Partnership arrangements with Xero, Sage, FreeAgent and our team of specialists have hands-on experience with many other bespoke software providers.