There have been difficulties in keeping the UK's tax system operational and technologically up-to-date and as such, the government launched the Making Tax Digital (MTD) initiative. By shifting taxation to a digital model, it has allowed businesses to say goodbye to mountains of messy paperwork.
In April 2019, it was announced that VAT-registered businesses with a taxable turnover of more than the £85,000 VAT threshold were required to submit their VAT information using compatible software that connected to the HMRC system. The Making Tax Digital extensions went live for all VAT-registered businesses, including those with less than £85,000 in turnover, on April 1 2022.
How Does Making Tax Digital Work?
Making Tax Digital shifts the recording of tax records and the submission of tax returns away from paper and towards a digital model. Businesses and individual taxpayers will be required to keep digital records of their finances and submit quarterly returns to HMRC in a digital format.
This change will require a new way of working, which may incur a learning phase at first, but with numerous benefits for your business, digital record-keeping is likely to become something that makes your life easier in the long run. The government hopes that Making Tax Digital will make it simpler for individuals and businesses to file their taxes and stay on top of their finances. HMRC identified fewer errors, increased productivity, and better financial planning in an evaluation of the initiative's rollout in March 2020.
What You Need to Do
Businesses need to have signed up to Making Tax Digital for their first VAT return starting on or after 1 April 2022. You may not be required to make your first submission via Making Tax Digital until Summer 2022. If your VAT period began before 1st April 2022, you may continue to use paper records until the end of that VAT period without enrolling in Making Tax Digital. Once that time has passed, you must begin keeping digital records. If you sign up for Making Tax Digital in the middle of your VAT period, you will be unable to complete your VAT return on your online account and may be penalised. You can keep paper records, such as a notebook or paper receipts if you currently do so.
Sign up for Making Tax Digital at least 5 days after your previous non-Making Tax Digital VAT return deadline and no less than 7 days before your first Tax Digital VAT Return deadline. It’s also worth bearing in mind that the government’s Making Tax Digital initiative will expand again on 1st April 2024, to include all self-employed business owners and landlords with a total business and/or property income above £10,000 per year.
Hysons, Chartered Accountants, are Here to Help
If you’re using a cloud accounting platform, such as Xero, Quickbooks or Sage, then you’re already set for Making Tax Digital. If not, now is the perfect time to switch from a paper-based system, or a desktop accounting set-up, to the multiple benefits of cloud accounting.
Here at Hysons, Chartered Accountants, we can run you through the planning needed for Making Tax Digital compliance and make sure your digital accounting system is fit for purpose and ready to submit returns. Talk to us today about getting your records, accounting and tax planning in line with Making Tax Digital.