You’ve likely heard a lot about the upcoming changes to the way tax works as well as the Making Tax Digital (MTD) campaign. As the deadline for conversion draws closer, reminders have become more frequent but so many business owners are still feeling a little lost and confused. After all, taxes were already tricky enough so what’s changing?
Even when you are using an account or bookkeeping service, it’s important to have a clear understanding of how the tax process works. In this guide, we are here to explain how MTD works and the way in which it will impact your business. This includes the timeline for the transition so you know when you need to be ready. Together, we can make tax a little easier.
What’s the Timeline for Making Tax Digital?
The timeline for MTD is very simple and brief, which will come as a relief to business owners. It also spans several years, meaning that many people will have plenty of time to transition.
April 2022: MTD for VAT
- This means VAT registered businesses must use recognised software in order to keep digital records and submit VAT to HMRC.
April 2024: MTD for Income Tax Self Assessment
- This applies to all self-employed business owners with an income of over £10,000. This also includes landlords.
April 2025: MTD for Income Tax Self Assessment
- This will apply to general partnerships with an annual turnover of £10,000 or more.
April 2026: MTD for Corporation Tax
- This is the earliest date at which it will be introduced.
What is Making Tax Digital?
Making Tax Digital is a government initiative in the UK to make tax easier for business owners across the country. The purpose of this plan is to set an end to the traditional tax return and completely reform the system into something new. It’s not only designed to make the process simpler for tax payers but also more effective and efficient for the tax administration.
What does this mean for you? Well, it will mean the implementation of quarterly tax returns as opposed to a single annual one. These will be sent directly to HMRC and will require the use of compatible software. What this means is that you will need to use a comprehensive software that works alongside HMRC’s own software and technical requirements.
These tools track the progress of your business in real time, recording the data to build an accurate tax picture of your income and spending. It’s better at highlighting potential errors and is able to alert you to areas that might need a little improvement. It’s just a better way at discovering areas that would normally be overlooked.
It’s designed to help you improve your financial planning, something that all business owners struggle with at times, while also increasing productivity and leaving you with fewer errors in your tax returns.
What Do You Need to Do to Prepare for Making Tax Digital?
In order to properly prepare for the upcoming changes to the way tax works, there are a few things you can do to make the transition to MTD easier.
First, make sure you pay attention to the timeline and don’t miss the cut-off date for the MTD band that relates to your business. It’s important to stay on top of things if you want to be completely prepared for the change.
Secondly, you’re going to need a plan of action. You can work this out with your accountant so that you have a full understanding of how the change impacts you personally and the steps you need to take in order to be ready. As an example, this plan of action might include setting up a system where you can share digital records and information seamlessly with your accountant.
Third, you will need to find compatible accounting software. This will need to be in place before you even register for MTD. The software will also not be provided by HMRC, you will need to source it yourself. If you’re unsure if your current software will be compatible with MTD, your accountant will be able to help you.
Finally, you will need to register for MTD. Once everything is in place, signing up is all you have left to do. There is no automatic enrollment so you will need to head to the government website and do it yourself. The registering process is very simple and will only take you a minute. Just make sure you do it before the deadline so that you’re ready to go as soon as it launches.
FAQs
Can you opt out of making tax digital?
The only way to opt out of making tax digital is if you are elderly or disabled and have no access to the electronic equipment required, or on religious grounds where your religious beliefs are not compatible with the use of digital technology. You must contact HMRC to confirm this.
Is MTD just for VAT?
While MTD is currently only for VAT (as of 2022), the timeline dictates that all businesses will need to comply with it between 2024 and 2026.
Are there any benefits to MTD?
- There are plenty of fantastic benefits to the implementation of MTD. These include:
- Less paperwork for you to handle
- Returns that are more accurate
- Bookkeeping that is easier to manage
- Real time tax information that is always available
- Keeping track of funds and expenditure
- Saving you time so you can focus on business growth
What is a digital record?
Digital records for MTD refer to you storing a copy of the digital transactions your business makes. They will need to be kept in software that is both functional and compatible so that the data can be sent directly to HMRC when ready.
To Conclude
Making Tax Digital can feel overwhelming and stressful, but we are here to help take some of the weight off your shoulders and guide you through the process. At Grow Business Services, we offer professional bookkeeping and accounting services that are fully compliant with MTD and will ensure the transition is as smooth as possible.
No matter your questions or concerns, you’re welcome to get in touch any time and we’ll make sure you get the assistance you need.
Grow Business Services 