What is HMRC’s plan for Making Tax Digital?
HMRC has said that it won’t widen the scope of Making Tax Digital for business beyond VAT-registered businesses before the system has been shown to work successfully. In an announcement in July 2020, they have said that it won’t be until 2024 that almost everyone will be required to file in line with MTD.
This time frame will ensure that there is time to test the system fully and for digital record keeping to become more widespread.
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What will businesses need to do for Making Tax Digital when the scope widens?
Digital Record Keeping
The first main requirement for businesses for MTD is to maintain records digitally using third party software. This is something you may already do, so may not actually have much of an impact on how you currently keep track of your records. For those not already keeping digital records, it would be wise to start that process now and become comfortable with it before it becomes mandatory.
Quarterly updates and a tax estimate in year
Business owners will need to update HMRC on a quarterly basis using their digital records – a significant shift in current obligations. Many businesses already keep on top of their record keeping and accounts in order to keep themselves accountable and keep track of their finances. However, if you don’t already provide regular updates, it may be an extra burden on your shoulders. Despite the extra hassle, it will give greater certainty about your tax liability throughout the year.
Paying tax more frequently
Although it hasn’t been confirmed by HMRC or government, MTD could give businesses the opportunity to pay tax more frequently, closer to real-time and potentially on a voluntary basis. This is different to how businesses currently pay their tax bill – once per year after the end of its financial year. Given that it was introduced with Real Time Information in payroll back in 2013, it’s our prediction that it will also be introduced as part of MTD.
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Frequently Asked Questions
To become compliant with MTD, you need to use government approved software to record your accounts and submit your finances to HMRC. You can refer to HMRC’s software search tool to find out more, or you can use a reliable accountant who already uses MTD compliant software - like Mazuma - to sort it all for you. We know what we’d rather do!
Yes - we use software that is compliant with Making Tax Digital. If you don’t want the stress or worry or setting up a new digital system, contact us today to see how we can ensure that your accounts are compliant with MTD.
Keeping digital records is a core aspect of Making Tax Digital. From now on you will need to keep your records in a digital format, stored on a computer or in the cloud. If you use handwritten invoices or receipts then you'll have to transfer that accounting information into MTD compliant software before you submit your returns (or get your accountant to do it for you!).
Keeping digital records doesn’t mean you don’t have to keep original paperwork. Quite the opposite, in fact. Original paperwork still needs to be stored as it could be required by HMRC in the event of a tax or VAT investigation. For most businesses, it means keeping paperwork for at least six years, though for many (VAT MOSS) it is a minimum of 10 years. HMRC will accept digital copies of receipts and invoices, so you could scan documents and store them to save on storage space in the office. But who has time for that?
Something we pride ourselves on at Mazuma is digitising records for our clients who don't want to use our app or their own MTD compliant software. If you prefer more traditional methods or are perhaps a little sceptical of a more digital future, you can send us all of your paperwork. We’ll scan and digitise it for you, saving you a lot of admin hassle and keeping you completely compliant with current and future MTD rules.
Yes it’s completely free and in most cases easy to complete. However, mistakes can be made which could prove costly.
Would you cut your own hair because it’s free? I thought not! For only £75 a qualified accountant will complete and submit your tax return leaving you with peace of mind that your tax return has been completed properly. It will reduce your stress levels and free up some of your time to concentrate on the important things in life.
At the moment, no. Making Tax Digital won’t change how often you need to submit your vat return and you still have to send the same information. MTD will simply change how you record your finances as well as how you submit your quarterly VAT return to the powers at be, HMRC.
Yes, if you are VAT registered and your turnover is above £85,000, then the rules apply - it doesn’t matter if you’re a sole trader or a limited company! And eventually it is likely to apply to all businesses with a turnover over £10,000 as well as most individuals who submit tax returns - such as the self employed and landlords.