Change is on the way for the UK tax system – and if you have your own business now’s the time to take note. After various stops and starts and plenty of controversy, Making Tax Digital (MTD) is finally a ‘thing’.
The idea was first mooted by HMRC as long ago as March 2015, as a bid to ‘eradicate bureaucratic form filling and eliminate unnecessary time delays’. So far so good.
The in-coming solution is for HMRC to give millions of taxpayers digital accounts, where VAT, expenditure and income information will be uploaded on a quarterly basis, enabling you as a business owner to integrate taxation into the daily management of your business.
The benefit for business owners is that they’ll hopefully have a better steer on how their business is doing, with a real-time view of their tax position – and no dreaded annual tax return to file
So if you’re the type of person who turns up at your accountants with a massive bundle of receipts, invoices and bank statements once a year, then everything is about to change.
Sound good? Or completely scary? Here’s what you need to know:
1. If your turnover is more than £85,000 as of 1 April 2019, you’ll be taking part for your first VAT period after this date. This is when MTD becomes legally binding for VAT.
2. Don’t just ignore MTD if your turnover is less than £85,000 at 1 April 2019. As you probably do already, you’ll need to check your turnover for the last 12 months at the end of each month to see if it exceeds £85,000. If it does, MTD for VAT will apply from the first day of the following month. You would also need to be VAT registered if you are not already.
3. If your turnover is between £10,000 and £85,000 from (at the earliest) April 2020 is when you’ll be making the switch. You’ll need to keep digital records and generate and send quarterly updates to HMRC on your income tax and corporation tax, as well as VAT if applicable. Ministers still need to decide when MTD for taxes other than VAT will actually start.
4. Every business will have to use an HMRC-accredited software accounting system from which to upload the data. HMRC are finalising that list right now, but currently most of the established accountancy software providers are included. These are mainly paid-for services, although there will be some free ones available for income tax for the most simple businesses.
5. Although it might cost small businesses at first in terms of both time and money to get to grips with MTD – hopefully it should streamline the process for the better down the line.
For more information on Making Tax Digital the best place to start is at gov.uk. For MTD for VAT in particular more information is provided in VAT Notice 700/22: Making Tax Digital for VAT. Given the number of changes and the need for specialist accounting software, you should speak to your accountant or tax adviser well before MTD becomes relevant for your business.