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Making Tax Digital (MTD) — What You Need To Know

What is Making Tax Digital (MTD)?

You’ve probably heard of the new plan by the government known as Making Tax Digital (MTD). But what is Making Tax Digital, and when is it coming into play? This article will lay out everything you need to know about this scheme, how to implement your digital tax returns properly, and how we can help.

Making Tax Digital has been created by the government to make understanding tax and completing tax returns easier than ever before. 

HMRC aims to make its tax system one of the most digitally advanced in the world, ensuring it is more efficient and easier for taxpayers to complete a tax return. 

The HMRC Make Tax Digital (MTD) program is a completely digital software made to phase out all instances of paper tax returns in the future.

The changes will apply to most businesses, self-employed people, and landlords.

What are the Making Tax Digital (MTD) Deadlines?

HMRC aims to introduce the Making Tax Digital scheme slowly. Currently, it only affects those who are VAT registered businesses. However, it is about to change.

Let’s look at the different deadlines for Making Tax Digital below:

MTD in April 2019 

This deadline for all businesses to sign up who are VAT registered with a turnover of over £85,000 was April 2019. These businesses will need to start keeping digital records of their VAT returns and should be submitting them using the appropriate software for the scheme. 

MTD in October 2019

Some businesses, such as trusts, not for profit organisations, and certain public sector organisations, were given a six month deferral period until October 2019 to complete their tax returns. 

MTD in April 2022

This deadline is mandatory for companies and organisations whose turnover doesn’t quite reach the £85,000 VAT limit. They will need to submit their tax returns digitally after this time and have the option to submit them at an earlier time if they wish.

MTD in April 2024 

Finally, April 2024 is the Making Tax Digital deadline for those who routinely file self-assessments for their income tax returns. Once again, this is for those with business or property income of over £10,000 per annum in total. 


Can I Opt-Out of Making Tax Digital (MTD)?

Unfortunately for those that qualify, they will not be able to opt out and will have to use the system for tax returns when the deadline hits. However, for some specific cases, businesses can apply to be excluded. 

Let’s take a look at them here:

If your business earns less than £10,000 in gross turnover in total, you are exempt and do not have to file your taxes digitally. Remember, this is the total turnover. If you have two businesses or a business and property income and they all exceed £10,000 turnover in total, you will have to opt-in to Making Tax Digital. 

If you earn over £10,000, HMRC will grant you an exclusion only if it is impractical or almost impossible to use their digital system. Examples include businesses in remote locations that cannot use the internet or those who have certain disabilities. 

If the company and owners do not reside in the UK, they will not need to opt-in to the scheme at this current moment in time as well as, trustees, executors, and administrators will be able to opt-out.

If you believe you should be excluded, contact HMRC directly and explain the reasons why to see if you have grounds for this exclusion before the deadline. 


How Can VAT Registered Businesses Sign Up for Making Tax Digital (MTD)?

So, to make things clear, all businesses that are VAT registered will need to keep digital records starting from the accounting period on or after 1st April 2019. 

However, if you don’t have a VAT registered business but still have a taxable revenue, you can still sign up and start making your tax digital earlier. 

So what digital financial records do I need to make digital? Let’s explain what you need below:

  • Business Name and Primary contact details
  • VAT number, list of any scheme used, VAT on any supplies received and made
  • Daily gross takings
  • Purchases of assets (that you can reclaim VAT on)
  • Reverse charges 
  • Total Sales Value 
  • And more.

Please be aware this isn’t an exhaustive list. If you need more information, consider contacting a chartered accountant today. They will go through everything you need, along with providing you support when setting up the Making Tax Digital scheme.


How Can Sole Traders Sign Up for Making Tax Digital?

Although sole traders still have time before they need to sign up for the scheme, they can still sign up for it early. But what sort of taxes need to be recorded as a sole trader?

The Making Tax Digital system currently lets you upload records and submit any updates regarding your income tax to HMRC. This saves you lots of time instead of spending it filling out the self-assessment tax return. The system provides real-time information, letting you know how much tax you will need to pay as you go.


Signing Up for Making Tax Digital for Corporation Tax Purposes

Currently, there aren’t any details about when this system will provide corporation tax capabilities for businesses of all sizes. 


What Software Should Be Used for Making Tax Digital?

To be able to effectively use Making Tax Digital, compatible software should be used. 

If you use reputable and popular accounting software, such as Xero or Quickbooks for example, chances are you will be covered and won’t need to make any changes. Take a look at this list of compatible accounting software to make sure that you will be able to use Making Tax Digital. 

If you don’t use any accounting software, you are likely to run into lots of problems and large costs down the line. 

However, even if you do use accounting software, it may still be costly to train employees up to use, and implement the system efficiently. 


Do You Need to Re-register?

The question in many peoples’ minds is whether you need to re-register for income tax when you already are registered for VAT. 

Unfortunately, due to the fact that the two taxes are quite different, you will have to sign up two times. 

However, the scheme can make life a little easier for you. You can opt to change your accounting period. This allows you to have the same accounting period for income tax, along with, VAT so you can do them both at the same time and won’t have to worry about two completely different tax deadlines in the future. 

This is also a good idea to enact for those who own more than one business, as it simplifies the tax return process. 

Make sure to request these changes ahead of the deadline to ensure they will come into effect within the time limit.


Go Digital at the Earliest Opportunity

To avoid lots of risks and late tax returns, it is recommended to start implementing Making Tax Digital into your tax returns as soon as possible. Otherwise, you will be overloaded with admin work and trying to get a new system up to speed whilst trying to submit accurate tax returns at the same time. 

Before you begin to go digital, it may be a good idea to speak to an accountant or tax professional. They will check to make sure everything is in order beforehand and will be able to answer any questions and give advice on the whole process. 

Those using digital cloud accounting software are in luck. On most occasions, you already meet all the necessary requirements for Making Tax Digital. So, if you use cloud accounting software, you won’t need to do much apart from using the features in the software that you already have and know. 

As we’ve mentioned earlier, if you use paper or spreadsheets for your accounting, you will need to make the switch much earlier to accommodate the change. 


Making Tax Digital For Income Tax Self Assessment

From April 6, 2024, income tax will be collected electronically (in the form of a "digital tax") in the United Kingdom. The government is introducing an extended deadline for filing income taxes through a digital tax (MTD) from April 6, 2024. Self-employed people and landlords who have yearly business or property earnings greater than £10,000 must adhere to the requirements for MTD for ITSA from April 6, 2024.

The introduction of the MTD for ITSA had been scheduled for April 2023, but a written ministerial statement made on September 23 2021 (see here) stated that it would be delayed by one year to April 2024.


Can I Get an Accountant to Do This Process for Me?

For best results, it’s a good idea to speak to an accountant way ahead of the deadline to get everything in order. 

When you get a chartered accountant to help you with your digital tax returns, they can help you submit quarterly updates, final declarations and EOPS forms, all on your behalf, saving you time. 

If you don’t have an accountant to help, why not talk to one today? At Suretax, we can help. We have experienced chartered accountants on hand to provide you with expert advice and ensure that your taxes are completely digital and signed off before the deadline hits. 

Open Monday to Sunday from 9 am to 7 pm, we are an award-winning accounting firm providing advice to companies of all sizes, whether it's for filing your income tax or VAT returns. 

You will receive a dedicated accountant who will understand everything about your business to ensure that you are paying the right amount of tax and filing the digital returns properly. 

If any of this interests you, contact us today

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"The financial success of every business is dependent upon an effective and insightful understanding of their current standing."

— Julie Cameron, Managing Director of Suretax