There’s numerous misinformation about Making Tax Digital (MTD).

Primarily, it’s the federal government’s plan to digitalise taxes.

Making Tax Digital for VAT means VAT-registered companies should use software program for his or her VAT accounting and digitally maintain their VAT accounting information.

In April 2024, Making Tax Digital (MTD) is expanded to revenue tax, and can have an effect on thousands and thousands of sole merchants and landlords with incomes above £10,000.

The advantages for companies of MTD are clear: accounting is revolutionised, with a much-clearer view of money stream and tax liabilities.

This empowers enterprise homeowners and managers to make higher selections and to focus on progress.

On this article, we listing 9 incorrect assumptions about MTD. Have a learn and see how a lot you understand—or not…

Right here’s what we cowl:

1. It’s about going 100% digital with all your accounting

2. HMRC wants to see all of your accounting data

3. With Making Tax Digital, you’ll pay more tax

4. If I use an accountant, I can forget about Making Tax Digital

5. MTD for VAT doesn’t affect me because I’m only voluntary registered

6. I don’t run a business, so Making Tax Digital doesn’t affect me

7. I checked thoroughly. I’m not affected by Making Tax Digital. So that’s the end of the story… right?

8. Making Tax Digital means I no longer need to submit a tax return

9. Small businesses don’t need to bother with Making Tax Digital

Final thoughts on Making Tax Digital

Going completely digital together with your accounting is finest observe. It reduces admin for you, and frees you as much as spend extra time doing what you like.

Nevertheless it’s to not say Making Tax Digital requires 100% digitalisation of your accounting.

The principles are typically difficult and needs to be consulted, however usually it’s completely attainable to proceed to make use of paper-based invoicing, for instance.

You simply want to make sure the main points are transferred into your accounting as quickly as attainable (or ideally use your accounting software to issue the invoices within the first place, so the information is already there).

And for all these occasions when paper can’t be prevented—while you obtain a receipt after buying one thing, for instance—you must purpose to get the information into your accounting as quickly as attainable.

In actual fact, utilizing an app comparable to AutoEntry means you possibly can automate this proper there after which utilizing your cell phone’s digital camera, with out having to fret about it later.

It’s not unnatural to see Making Tax Digital as an try by HMRC to see extra of your accounting information.

However the actuality is that, up to now a minimum of, HMRC hasn’t required companies handy over any extra information than it has beforehand.

MTD for VAT means you continue to have to submit nothing greater than the identical 9 packing containers of data on your VAT Return, for instance. You simply need to do it digitally, and maintain digital information.

What’s altering with MTD for Income Tax is that that you must let HMRC see the information extra often.

You could make periodic updates a minimum of quarterly for every enterprise you use.

Though the periodic updates don’t must be correct, the purpose is to let all people have a greater thought of the tax place—together with you.

This implies you could have a extra intimate understanding of your money stream, so can plan higher.

HMRC says a key driver behind Making Tax Digital is to shut the tax hole—the avoidable errors and fraud that imply billions of kilos of tax isn’t paid yearly.

If you happen to’ve been finishing your tax returns accurately then MTD shouldn’t imply you pay any extra (or much less) tax than you’d if MTD hadn’t been launched.

MTD is only a totally different (and higher) means of calculating and reporting the identical previous taxes we’ve been doing for years.

Making Tax Digital for VAT software program

Uncover how Sage Accounting may help you get your MTD for VAT submission proper, calculate your invoice and submit your VAT Return with ease.

Find out more

You’ll be able to proceed to ask an accountant to arrange your books in the event you use Making Tax Digital. However this undoubtedly doesn’t imply you possibly can neglect about MTD’s necessities.

You continue to want to modify to software program on your related accounting, and maintain your information digitally too.

It’s the necessity to maintain your accounting information digitally that catches out those that don’t do their very own accounting.

And it leads straight again to the primary requirement—you’ll want to make use of some sort of software program on your accounting record-keeping, even in the event you’ve determined that bookkeeping isn’t one thing you wish to cope with.

The good information is that this may be so simple as utilizing a handful of apps in your cell phone.

You’ll be able to digitalise the data from receipts, invoices, payments and different paperwork, and you’ll hyperlink an accounting app to your banking so you possibly can all the time see your money stream, and concern invoices electronically.

Converse to your accountant, you probably have one, about one of the best ways ahead.

This was actually the case again in April 2019, when MTD for VAT was first launched.

Nevertheless it’s not the case now.

MTD for VAT has been prolonged to each enterprise registered for VAT.

In different phrases, all VAT-registered companies want to make use of software program for his or her accounting, and digitally maintain their accounting information referring to VAT.

This is among the trickier gotchas that catches out many individuals.

For instance, any individual who rents out a single property may not think about themselves to be operating a enterprise. In any case, it would demand little or no of their time throughout the yr.

Or any individual who has a aspect hustle doing freelance work, however in any other case works a full-time job by which tax is paid by way of PAYE, may not think about themselves to be operating a enterprise.

However they’re certainly doing in order HMRC is anxious. Due to this fact, the foundations of MTD might apply to them.

Each landlord with a rental income above £10,000 might want to observe the MTD for Revenue Tax guidelines as of April 2024, for instance.

If the freelancer talked about earlier earns greater than £10,000 outdoors of their day job, they too might want to observe the foundations for MTD for Revenue Tax and cease utilizing Self Assessment for declaring that revenue.

And it goes with out saying that if any particular person is registered for VAT, they too should register for MTD for VAT.

For instance, any individual with a interest promoting gadgets on-line who has registered for VAT is taken into account to be operating a enterprise and due to this fact could be included within the scope of MTD for VAT (and maybe MTD for Revenue Tax).

It could be, however there are different issues associated to MTD that may have an effect on you in the event you’re a sole dealer.

Foundation interval reform

This transition will happen throughout 2023/24, and will have an effect on any sole dealer or unincorporated enterprise, no matter whether or not MTD for VAT or MTD for Revenue Tax applies to them or not.

Right here’s why: all companies have accounting dates at which level they draw up their accounts.

The 12 months previous to this is called the premise interval.

For a lot of sole merchants, the accounting date and foundation interval match the tax yr.

In different phrases, the premise interval runs from 6 April to five April the subsequent yr.

Nonetheless, it’s attainable to have accounting dates and a foundation interval that doesn’t match the tax yr (e.g. 1 January to 31 December).

To make life simpler for many who enrol for MTD for Revenue Tax, HMRC is introducing foundation interval reforms that may imply all non-incorporated companies comparable to sole merchants should swap to utilizing the tax yr for his or her foundation interval, and use 5 April for his or her taxable date.

New points-based penalties

A brand new points-based penalty system applies to late submissions from January 2023.

As a substitute of immediate fines, companies will incur factors. And as soon as the factors attain a given threshold, a nice will robotically apply.

Initially, solely MTD for VAT is affected however when MTD for Revenue Tax begins in April 2024, the brand new factors system will apply there too.

Then as of April 2025, it is going to apply to all Self Evaluation submissions too, regardless that that is outdoors the scope of MTD.

That is largely false.

If you must observe the MTD for VAT guidelines, for instance, then you definately’ll nonetheless have to submit your VAT Returns. It’s simply that this should now be achieved digitally, by way of software program.

It’s true that MTD for Revenue Tax means there’ll not be any have to submit a Self Evaluation tax return (the SA100).

However that is successfully changed with the yearly remaining declaration, during which you crystalise and log out your revenue and expenditure to calculate your tax and Nationwide Insurance coverage cost.

As with Self Evaluation tax returns, HMRC will evaluate this.

We don’t know a lot for sure but in regards to the guidelines of MTD for Company Tax. Nevertheless it appears this may once more retain the Company Tax Return—however would require it to be submitted digitally.

That is largely false, however there may be some reality to it in terms of MTD for Revenue Tax.

First, it’s vital to notice that MTD for VAT applies to any enterprise registered for VAT. Turnover doesn’t matter. So, it impacts the smallest VAT registered enterprise as much as the most important company.

Nonetheless, upon its launch in April 2024, MTD for Income Tax will solely have an effect on these whose revenue is over £10,000. After which, in April 2025, it is going to solely have an effect on common partnerships which have revenue over £10,000.

These people or common partnerships with earnings beneath £10,000 will proceed to make use of the Self Evaluation system, similar to they all the time have achieved.

Is it attainable MTD might be expanded to partnerships, sole merchants or landlords with revenue beneath £10,000?

It’s maybe possible, however HMRC hasn’t made any announcement about it but.

Making Tax Digital isn’t difficult however there’s a requirement to know the foundations if it impacts you.

Hopefully, a number of the solutions above ought to’ve dispelled the pervasive myths which have arisen round Making Tax Digital.

Getting your taxes proper is made simpler by MTD, and as such getting a transparent understanding of the brand new guidelines is an effective step in the direction of operating your corporation extra easily, lowering admin and doing extra of what you like.

Editor’s observe: This text was first printed in December 2021 and has been up to date for relevance.

A information to Making Tax Digital for VAT

Need assistance with Making Tax Digital? Obtain this free information to study MTD for VAT, so you possibly can ship your VAT Returns consistent with HMRC’s necessities.

Download your free guide