Yesterday the Treasury announced upcoming Making Tax Digital changes for landlords, businesses and the self-employed.
Making Tax Digital (MTD) is an initiative that requires you to keep digital financial records and provide tax returns via approved software. Currently the scheme is only mandatory for businesses with taxable turnover above £85,000. These have to provide HMRC with quarterly, digital VAT returns.
What are the Making Tax Digital changes?
From April 2022, HMRC will roll out the scheme to all VAT-registered businesses, which will have to report digitally. Then, from April 2023, Making Tax Digital will be applied to anyone filing self-assessment tax returns for business or property income of £10,000 or more. This second change will cover most self-employed people and buy-to-let landlords.
Importantly, you will have to use software to send HMRC financial updates every quarter. You follow these with an annual ‘final declaration’, which takes the place of the annual self-assessment tax return.
Why are the Making Tax Digital changes happening?
Government claims the scheme will make it easier for businesses and individuals to keep on top of their tax affairs. HMRC also believes MTD will help cut back on mistakes by taxpayers. These cost the Treasury some £8.5 billion in 2018-19.
If the scheme had been introduced earlier, it would have made many newly self-employed people much happier. Because these individuals had not been self-employed long enough to submit an annual tax return before the Coronavirus pandemic struck, they weren’t eligible for the Self-Employed Income Support Scheme.
Can I opt in to MTD early?
Yes, you can opt in to MTD early. HMRC publishes guidance for businesses wanting to opt in to Making Tax Digital for VAT and self-employed people and landlords who want to opt in to MTD for Income Tax.
How to sign up to MTD
There is a good argument for opting in to MTD early. If you do, you can be certain that there will be no problems or hitches when the scheme becomes compulsory. It’s particularly important to make sure that you are using compatible and approved cloud accounting software before you make the switch.
As HMRC says in its Making Tax Digital for VAT guidance: “If you use an agent or an accountant, talk to them about what you need to do.”
At THP we already have plenty of experience switching clients over to MTD. So whether you are an existing client or you are looking for a new accountant, please get in touch. We will be very happy to talk you through the steps you need to take to become MTD compliant. You may also be interested in reading our guide, What is Making Tax Digital?
About Kirsty Demeza
With a portfolio that ranges from startups to companies with a £10 million turnover, Kirsty’s talent for working closely with her clients ensures her services remain in strong demand.
“The most rewarding part of my role is seeing clients succeed,” she says. “When you help a new business and watch it expand into new premises and secure big contracts, it’s a great feeling.” Kirsty never finds two days are the same.
As well as providing accounting services that range from self-assessment tax planning and VAT to audit and accounts, she’s part of THP’s sales team and closely involved in helping our trainees to develop their skills.