On 21 July the government published its 10 year strategy for the tax system. This included its plans to extend the Making Tax Digital initiative.
The government’s approach appears to be open and consultative, but commentators are concerned about the speed of planned change, given that businesses are coping with the fallout of the pandemic. The Government counters this position, arguing that the self-employed could have been better supported had real time information been available.
The key aspect of Making Tax Digital is that businesses and landlords who join MTD must keep their business records digitally and send tax information to HMRC directly from those records using MTD compatible software.
The current timescales and planned extensions to Making Tax digital are:
MTD for VAT
- Since 2019, all VAT registered businesses with a taxable turnover above the VAT threshold (£85,000) have been required to keep their VAT business records digitally and send their VAT returns using MTD compatible software
- From April 2022 all VAT-registered businesses will be required to do this
- If your business is below the VAT threshold you can voluntarily join the Making Tax Digital service now
MTD for Income Tax
Here comes a new acronym. MTD for ITSA. Making Tax Digital for Income Tax Self-Assessment.
- MTD for ITSA will apply from April 2023 for unincorporated businesses and landlords with total business or property income above £10,000 per year. That will give most businesses over two years to prepare
- Eligible businesses can also test the service, now voluntarily
- To be eligible to pilot the service, you must be
- a UK resident
- registered for Self-Assessment with up to date returns and payments
- a sole trader with income from one business only and/or a landlord that rents out UK property
- You will need to send a quarterly summary of your business income and expenses to HMRC using MTD compatible software
- You will receive an estimated tax calculation to help you budget for your tax payments
- At the year end, non-business information can be added to finalise your tax affairs, replacing the need for a self-assessment tax return
HMRC hopes to widen eligibility for the pilot over time, so that the majority of sole traders and landlords will be using it be April 2021.
MTD for Corporation Tax
In addition to its plans for VAT and Income Tax, the government’s strategy document also indicates that it will be consulting on the design of an MTD system for Corporation Tax later this year. This will bring incorporated companies in to MTD.
Stuart Hulland, Partner at Bates Weston has spearheaded the firm’s adoption of MTD. He comments:
“We encourage eligible clients to work with us to pilot the MTD for ITSA scheme, however clients that join the scheme for 2020 to 2021 will still need to complete tax returns for 2019/20 by 31 January 2021. Adopting methods that give clients and their advisors more focus on their real time position, makes for more informed and responsive decision making. That said, many businesses are rightly focussing on surviving and adapting to the economic trading conditions caused by the pandemic at this time, and may not be receptive to early adoption of either MTD for VAT or ITSA.”
If you would like to speak with us about joining MTD for VAT or MTD for ITSA, or any other aspect of MTD, please do get in touch.
Useful links:
Guidance on signing up for MTD for Income Tax