Making Tax Digital
Making Tax Digital
HMRC have a vision: To be one of the most digitally advanced tax administrations in the world. As a way to showcase this, they plan to introduce a fundamental change through the Making Tax Digital (MTD) initiative. This change means that paper records will no longer meet the requirements of tax law and information will be required to be submitted directly from the HMRC-approved software.
If you’re looking for guidance about how these changes could affect your working practices, we compiled our guide to provide you with all of the information you’ll need for the changes ahead.
When will Making Tax Digital affect me?
• Initially, it will affect VAT-registered businesses with turnover above the VAT threshold of £85,000. If this applies to your business, you will be required to record transactions digitally and file VAT returns using only MTD compliant software from April 2019 (the first VAT period starting on or after 1 April 2019). The current online VAT return will no longer be available.
• If you are registered for VAT but your turnover is currently below the VAT threshold as it stands, you will not be required to keep digital accounting records or to file your VAT returns using MTD compliant software until April 2020 or later. However, you do need to monitor your annual turnover each month, as if it increases to above £85,000 you will be required to comply with MTD for VAT rules. The current online VAT return will not meet the MTD requirements but will continue to be available until at least Spring 2020.
• Income Tax (self-employed, partnerships, trusts and landlords who complete Self-Assessment Tax Returns): MTD is expected to become mandatory for income tax reporting, but not before 2020.
• Corporation Tax (limited companies): The timings for MTD for corporation tax have yet to be confirmed but it will not become mandatory before April 2020.
Are there any exemptions?
• There are exemptions for those who are not able to engage digitally for religious reasons or due to a factor such as age, disability or location (e.g, no availability of broadband). These exemptions are the same as the current exemptions for VAT online filing.
• VAT registered businesses with a turnover of less than the VAT threshold (i.e businesses who have registered voluntarily) will be exempt from MTD VAT reporting but this exemption may be removed from 2020 or later.
• When Making Tax Digital for Income Tax becomes mandatory, there will be an exemption for businesses and landlords with a very small turnover (the level of this exemption has not yet been set).