Making Tax Digital (MTD) is the revolutionary new scheme from the government which aims to bring the tax system entirely online within the next few years. This is being undertaken with the goal of making the submission of tax returns more easy, effective and efficient for business owners, landlords and sole traders, as well as for HMRC itself.
Who is affected by MTD?
The first phase of MTD relates to VAT-registered businesses and came into effect on 1 April 2019. That means that from this date, any business, limited company or sole trader whose annual turnover exceeds the VAT threshold (£85,000 in 2019/20) must use MTD-compliant software to store and submit their financial records digitally.
The next phases of the scheme, dealing with Income Tax, National Insurance and Corporation Tax, has been delayed until at least 2020. However, its inception is inevitable, meaning that sooner or later all businesses will be affected by MTD. Those which are registered for VAT should take action to migrate to the MTD system immediately, while others would be well advised to pay heed too.
Practical preparatory steps
For those who are affected by MTD, it is imperative to prepare yourself for the upcoming changes by switching to a digital system of record-keeping (if you have not already done so). The government has specified that businesses will be required to submit quarterly reports on their accounts, so it makes sense to use a data-logging system or other accounting software that is compatible with HMRC systems. In this manner, the data can be automatically submitted as soon as you enter it.
You may also wish to sign up to the HMRC pilot MTD scheme, which allows you to voluntarily comply with the new regulations before they are in place. This will allow you to gain an understanding and familiarity with your new obligations and smooth the transition between the old way of doing things and the new one.
Software compliant with HMRC
There is now a lengthy list of software which has been adjudged to be compatible with submitting accountancy information, while many other products are still in development. A full list of those products which have been approved by HMRC can be found on the government website, including for both VAT and Income Tax. As yet, no software suppliers for Corporate Tax have received HMRC approval.
Where to get help
With such drastic changes to the way you submit your tax return in the pipeline, it can seem a daunting prospect to tackle MTD. That’s why it’s advisable for sole traders, limited companies, landlords and businesses alike to seek professional help when it comes to putting in place the necessary preparations for dealing with the imminent changes in legislation.
At Profile, we are Chartered Accountants with more than 16 years of experience in helping our clients to meet their taxation obligations. As experts in the world of accounting, auditing and taxation with our fingers firmly on the pulse of the ramifications that MTD is sure to bring, there’s no one better placed to ensure your company does not suffer in terms of performance of profitability from the new rules.
To find out more about how we can help you prepare for MTD, give us a call on 020 8432 2289 or send us an email at [email protected] We’re here to help.