What's Going On With Making Tax Digital?
Making Tax Digital (MTD) was first introduced in April 2019 for most VAT registered businesses with turnover exceeding the VAT registration threshold of £85,000. HMRC are aiming to join all internal parts to one account per one taxpayer. Essentially, you (the taxpayer) will have one account with an HMRC access account. The idea of this is to make life easier for you, as you would be able to see all your taxes in one place and will also allow HMRC to collect your taxes correctly - meaning that everyone’s a winner!
From April 2021, HMRC required MTD registered businesses to have digital links between software programs, applications, and products. Digital links essentially mean that once data is entered, there should not be any need for manual intervention. In other words, if you are using more than one software e.g. one for record-keeping and the other for submission, then the two should be digitally linked.
So, what further changes to MTD are coming soon? From April 2022 all VAT registered businesses must retain digital records and submit their VAT returns to HMRC using a 'functional compatible software'. This includes VAT registered businesses below the VAT registration threshold.
What is functional compatible software? This means your software is compatible with HMRC’s MTD VAT program. Functional compatible software is mostly available off the shelf and should be able to:
- Digitally record and preserve business transactions
- Send HMRC information and returns from the digital data (see number one) using the API
- Receive information from HMRC using the API.
With the changes in April 2002, businesses must keep records digitally, and HMRC will have access to transactions. One would think that HMRC will introduce software that is able to comprehend VAT reviews and investigations. It is important that you keep proper records to avoid any unnecessary attention. Businesses have six months to prepare and review their systems in case changes are required before April 2022.
MTD for self-employed businesses and landlords with business turnover above £10,000 are to be introduced from April 2024. This was initially planned to start from April 2023, a delay of 12 months. Once MTD for ITSA (Income Tax Self-Assessment) is introduced, you can expect the self-assessment tax return to be phased out. Individuals will be required to file an interim declaration instead of the self-assessment tax return.
If you would like to discuss any aspect of MTD, please get in contact with me at suda.ratnam@raffingers.co.uk or click here to get in touch.