HMRC’s next focus is Making Tax Digital for Income Tax and Corporation Tax, with a start date as early as April 2020.
To improve the efficiency of the tax system, HMRC want to go paperless. Making Tax Digital involves keeping digital records and using Making Tax Digital (MTD) compliant software to complete tax returns. Eventually, keeping paper records will no longer be allowed, with all tax submissions taking place online.
HMRC’s digital journey began with the introduction of the personal tax account in 2015 aimed at individuals to help manage your own tax affairs online.
HMRC are phasing in Making Tax Digital gradually. Making Tax Digital for VAT started on 1 April 2019 affecting VAT-registered businesses with a taxable turnover above the VAT threshold of £85,000.
The government originally wanted to phase Making Tax Digital in completely by 2021. But after consultation with the industry, the first stage only becomes compulsory for VAT-registered businesses from April 2019.
In October 2019 – more complex businesses who were deferred need to comply with Making Tax Digital.
More complex’ businesses include trusts, ‘not for profit’ organisations, VAT divisions, public sector entities required to provide additional information on their VAT return (Government departments, NHS Trusts), local authorities, public corporations, traders based overseas, those required to make payments on account and annual accounting scheme users.
In April 2020 at the earliest, HMRC will implement Making Tax Digital for Income Tax and Corporation Tax.
MTD for small businesses
Currently Making Tax Digital affects VAT-registered businesses but all businesses will have to comply eventually.
There’s not much information out there currently on when Making Tax Digital will come into play for Corporation Tax. HMRC are waiting to see how the VAT rollout plays out before making any decisions on the next phases.
Making Tax Digital software
Businesses will need to use compatible software to send digital tax returns.
Your digital records don’t all have to be in one place, but HMRC wants data to flow and be exchanged digitally between applications by 31 March 2020. Until then you can use copy and paste to transfer information.
The product you use to submit digital tax returns needs to be compatible with HMRC. HMRC has a list of compatible software – examples include Xero and Quickbooks, both of which we use at Southside Accounting.
Businesses that don’t already use accounting software are likely to face one-off and ongoing costs. There are also likely to be costs when training staff to use the software and comply with Making Tax Digital.
Act now before it is too late and call us today to see how we can help. Southside Accounting are cloud accountants and MTD ready, using technology to help your business efficiency.
Need help with Making Tax Digital?
If you’re not sure of when your business should be submitting VAT returns, or whether you should have already registered for MTD altogether, we can help you.
Be sure to contact us at your earliest convenience and we’ll provide the support you need to get started with Making Tax Digital.