Unless you’re brand-new to the world of business, you are sure to have had HMRC’s Making Tax Digital initiative (MTD) on your radar for some time.
As the name suggests, MTD is a process that will see the UK tax system be driven on mandatory online channels.
According to HMRC, this is primarily to reduce human error, improve efficiency and, as a consequence, increase tax revenues. The government estimates that there are £8.5 billion worth of avoidable mistakes per annum.
Announcements have been made thick and fast over several years, and April 2022 sees the next major milestone in MTD’s rollout. Here’s a quick recap of what has happened, as well as what is coming up in April 2022 and over the next few years,
What has MTD changed so far?
The first phase of the scheme was MTD for VAT. In April 2019, businesses with a turnover greater than the VAT threshold (£85,000) were required to submit their VAT return using MTD software.
Businesses below the VAT threshold were also allowed to comply with MTD for VAT voluntarily, which many did.
In fact, at the end of 2021 about 1.6 million businesses had registered for this first phase of MTD, of which approximately one third were businesses with turnover below £85,000 who had done so voluntarily.
What’s new for MTD in April 2022?
The next phase of MTD is for all VAT registered businesses to comply with the system. This means it will become mandatory for all VAT-registered businesses to submit VAT returns digitally – even for those with a turnover below £85,000.
Don’t worry if you are in this situation. You can talk to us to get help.
For those businesses new to MTD for VAT, you will need to get the best experience to adopt MTD compatible accounting software like Xero or Sage, keep digital records and ensure you are appropriately registered with HMRC in good time.
The deadlines for sending VAT returns and making payments will remain the same, as will your monthly, quarterly and annual VAT return deadlines.
What is on the horizon for MTD?
After MTD for VAT is rolled out to all businesses, businesses and accountants will be waiting for MTD for income tax self-assessment.
This was meant to begin in April 2023 but was delayed to give businesses and individuals more time to prepare after a continuation of a tough economic environment.
We expect MTD ITSA to apply from April 2024, but can’t guarantee it won’t be delayed yet again.
Landlords and self-employed business owners whose property or business income exceeds £10,000 will be required to follow MTD ITSA procedures.
This will mean using MTD compatible accounting software. It needs to be able to keep digital records, create and send to HMRC quarterly and end-of-period statements, complete your business income and submit your end of year declaration.
Your software must be capable of operating on HMRC’s application programming interface. Some software solutions can do this, and other products are sure to enter the market.
After MTD ITSA will be MTD for corporation tax, which will kick in from April 2026 at the very earliest, with a pilot scheme scheduled to start in 2024.
If you have an urgent need to get ready for MTD for VAT in April 2022, or you want to begin planning for the changes in 2024, get in touch with our experts who will be happy to help.