It’s easy to forget that Making Tax Digital (MTD) was one of the big themes in the world of business when the pandemic struck.
Updates on furlough and bounce-back loans went on to steal the headlines, but MTD has not gone away. In fact, it will become a requirement for many more businesses over the next 12 months.
Despite this expansion, a recent survey undertaken by a purchase-to-pay provider (which took in the views of 200 finance leaders) found that 80% of businesses remained unprepared. Choosing the right software to facilitate MTD was the most common stumbling block.
If this is an obstacle for you, read on to find out how we can help. But first, here is a recap of what MTD is, where we are at, and what comes next in the roll-out.
A reminder – what is Making Tax Digital?
You could say that Making Tax Digital does what it says on the tin. It is a sweeping initiative which requires certain individuals and businesses to use compatible software to manage their tax affairs efficiently.
As you would imagine, the theory is that it becomes easier to pay your taxes and do so correctly.
At the basic end of the spectrum, you can still get away with using spreadsheets with some bridging software.
But while this is basic, it is unlikely to be simple – essentially, it just adds another layer to the process.
It’s far better to embrace a modern accounting package like Xero. This not only effortlessly makes you MTD compliant, but it also gives much more: it empowers your finance function with incisive financial reporting at your fingertips, integrated invoicing and automated bank feeds.
Making Tax Digital – What’s happened so far?
So far, since 1 April 2019, all businesses with a turnover above the VAT threshold (£85,000 in 2021/22) have been required to submit their VAT returns and store VAT records in line with MTD. After 12 months, more than 1.4 million businesses were signed up.
Actually, many businesses below the VAT threshold also adopted MTD at this time because of the efficiency gains that can be made.
A Lloyds Bank UK Consumer Digital Index in 2019 reported that the most digitally engaged save a day a week in administration and that those businesses that properly join up their tax and accounting software spend less time on tax.
What comes next for Making Tax Digital?
There is a clear timeline for the next stages of MTD. Before long, it will extend beyond the realm of VAT returns and start to impact income and corporation tax. The schedule is as follows:
From April 2022, all VAT registered businesses will have to adopt MTD rules, regardless of whether they exceed £85,000 turnover or not.
From 6 April 2024, MTD becomes applicable to income tax self-assessment for self-employed business owners and landlords with yearly property or business income in excess of £10,000.
If you are in either situation, you will have to become compliant in your next accounting period after this date.
HMRC has stated that MTD rules will be extended to corporation tax too, but that this will happen no earlier than 2026.
Recommended Making Tax Digital compatible software
Although it may seem like one more chore on the to-do list, complying with Making Tax Digital by integrating powerful accounting software into your finance function will unlock a host of efficiencies.
We at Evans & Partners are Xero cloud accounting advocates. Having worked with Xero for more than a decade, we believe it’s the perfect solution to streamline your business while ensuring MTD compliance.
All our existing clients are thriving in a Xero environment, so if you would like help getting started, please get in touch.