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Making Tax Digital (MTD)

Making Tax Digital (MTD) was first announced in the government’s Spring 2015 budget, with the ambitious plan to simplify the tax system, improve accuracy by enforcing timely digital record keeping, introduce personal tax accounts and reduce the tax gap by £9 billion a year.

While MTD for VAT went live in April 2019 (with some businesses’ start date deferred to 1 October 2019), MTD for income and corporation tax is on hold while HMRC evaluate the implementation of MTD for VAT so far. In July 2020, HMRC announced that MTD will be mandated for income tax from April 2023 with a consultation into MTD for corporate tax taking place later in 2020.  

MTD for income tax

Making Tax Digital for income tax

Who needs to comply and when?

From April 2023, if you’re a business owner or landlord with gross income in excess of £10,000, you will be required to keep your income and expense records digitally and to submit records directly to HMRC using MTD compatible software. 

What are the filing requirements?

Rather than filing one self-assessment tax return, you’ll submit six submissions to HMRC per year. So if MTD for income tax is mandated from April 2023, assuming that you choose an accounting period that is aligned with the UK tax year, the submissions required for the tax year 6 April 2023 to 5 April 2024 will include: 

Submission

Due date

First quarterly update

July 2023

Second quarterly update

October 2023

Third quarterly update

January 2024

Final self-assessment tax return (for tax year 2022/23)

31 January 2024

Fourth quarterly update

April 2024

End of period statement for the business income

31 January 2025

Final declaration including other income such as interest and dividends

31 January 2025

 

The quarterly updates will only include a summary of your business income and expenses, you are not required to provide details of any other personal income as part of the updates. If you have employment income, HMRC are planning to use information they hold to feed this directly into your final submission, so you won’t have any additional filing requirements for this.

However, you may be required to submit additional updates if you have multiple trades, or simply a sole trade and a rental property, which have different accounting periods. HMRC also plan to automatically include other income sources as part of the final submission process in the future, such as interest income from UK bank accounts.

There are no changes to the tax payment dates, they will remain 31 January and 31 July as applicable.

How we can help

Planning ahead

Although it might feel like there’s loads of time before the implementation in April 2023, you can use this time wisely now to ultimately make life easier in the long run. Click here for our latest insight on how to prepare now to ensure you face a smooth transition and minimise costs down the line.

MTD for income tax pilot

HMRC is currently running a very limited MTD for income tax pilot. By joining the pilot, you’ll benefit from first-hand experience with the new “real time” tax system and ensure you are ready ahead of it MTD for income tax being mandated for all. Click here for more information.

MTD for VAT

Making Tax Digital for VAT

Who needs to comply and when?

Currently, all VAT registered businesses with a taxable turnover above the VAT registration threshold (£85,000), need to comply with MTD for VAT, except those who apply for exemption under specific conditions. From 1 April 2022, all VAT registered businesses, regardless of turnover, will have to comply with all aspects of MTD. 

If your business income is under the VAT registration threshold but you are currently registered for VAT, you should monitor taxable income on a monthly basis. If you go over the threshold at the end of any month, you must submit returns digitally for any VAT period starting after the first day of the next month, and maintain VAT records within functional compatible software.

If your business, or charity with business income, is not registered for VAT but becomes required to register due to exceeding the VAT registration threshold, then you must comply with MTD from the first day of your VAT registration. After 1 April 2021 (or October 2021 if your MTD start date was deferred) you will also need to maintain digital links between component parts of your accounting system. 

What are the requirements?

  • To keep VAT records within functional compatible software
  • To provide VAT return information to HMRC via an API (Application Programming Interface) through MTD compatible software
  • To transfer or exchange data between software programs, products or applications via ‘digital links’, without manual intervention - this applies from 1 April 2021 (or October 2021 for deferred businesses)

One of HMRC’s aims for MTD is to reduce the VAT lost through errors and mistakes arising from manual input (click here to see the HMRC guidance on this in VAT Notice 700/22).

Before you use a software to submit your digital VAT returns you need to sign up to MTD with HMRC (click here for the process).

Digital links

The transfer and exchange of data between component parts of your ‘functional compatible software’ must be digital after 1 April 2021/October 2021, which is the extended deadline due to COVID-19 (click here for more information). Therefore all businesses mandated from 1 April 2019 onwards need to ensure that all transfers or exchanges of data between software programs, products or applications is made via a ‘digital link’ without manual intervention.

How we can help 

Submission of returns - Buzzacott's bridging solution

Firstly, check if your existing accounting software is compatible with MTD; most of the major accounting software providers, Xero, QuickBooks and Sage are compatible and will provide the Application Programming Interface link. If you are partly exempt, you need to adjust the data posted to the VAT account before submitting the return. If your software isn’t compatible, don’t worry! We have designed a bridging solution that allows submission of your VAT returns directly to HMRC in a way that is compliant and hassle free. We are also on hand to assist you with a review of your VAT return process, identifying digital “gaps”, preparing or submitting your VAT returns and supporting your decisions on MTD compliance. Get in touch below for more information. 

"Just a short note to say a massive thank you for the MTD solution. It was straightforward to use and the user guide worked in taking us through step by step. Thank you to all involved, you’ve made something I was concerned about very easy for us!" Becky Morris, Financial Controller - Diocese of Oxford

Get in touch
Get in touch

For more information on digital links, our bridging solution for MTD for VAT, or for advice on how to prepare for MTD for income tax, please fill out the form below and one of our experts will be in touch to discuss your requirements.

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