Making Tax Digital (MTD) | Your Questions Answered.
By Robyn Jones
Gone are the days of manual cash books and excel spreadsheets. Cloud Accountancy is now the way forward.
Making Tax Digital is now a legal requirement for VAT. It basically means that paperwork being filed to HMRC to file VAT is now phased out.
All of your documentation (where VAT is involved) needs to be done via a system that is MTD compliant, such as Xero.
So, if you, like so many other business owners still need advice on what action you need to take, this article will cover everything you need to know.
We’ll explain if MTD is something you should be signed up for, setting yourself up for MTD, submitting via MTD, MTD compatible software – and what will work best for your business.
What’s inside this article?…
- When Was MTD Introduced?
- What Is Making Tax Digital?
- Why Was MTD Introduced?
- Do You Have To Submit My VAT Returns Using MTD?
- What If I Am Below The VAT Threshold?
- Is MTD Just For VAT?
- What If I Am Not Signed Up For MTD?
- What Next?
When Was MTD Introduced?
Making Tax Digital was first introduced by HMRC in April 2019 to make it easier for businesses, and HMRC to file and store VAT (and future) tax details.
Furthermore, by April 2022, tax returns for businesses and the self-employed will also need to be filed in the same way. Meaning, you’ll need to use MTD compliant software to file your self-assessment.
What Is Making Tax Digital?
Making Tax Digital, or MTD is the way your VAT returns are sent and submitted to HMRC.
Making tax digital is exactly what it says. It means you must submit your VAT returns using a making tax digital compliant software. Rather than manually entering data to the HMRC portal.
Here’s what the HMRC has to say:
“Self-employed businesses and landlords with annual business or property income above £10,000 will need to follow the rules for MTD for Income Tax from their next accounting period starting on or after 6 April 2023”.
Why Was MTD Introduced?
HMRC introduced MTD to make submissions of returns automated and electronic. Thus making the process more efficient for both the taxman and the business owner.
The policy is designed to make it easier for the person preparing and submitting the returns. It also ensures everyone can keep on top of their tax affairs.
Another reason why HMRC has adopted this method is to reduce human error. Furthermore, they are also looking to improve the quality of information they received from business owners across the UK.
Do You Have To Submit My VAT Returns Using MTD?
Businesses with a turnover of over £85,000, who are VAT registered are now required to adhere to the MTD policy by preparing and keeping digital records, and using compliant software to submit to HMRC.
As Northern Accountants are specialists in cloud accountancy, the transition to MTD for our clients was very simple.
If you need support with any MTD queries please give us a call – or follow the link to the Gov.uk website for more information: Gov.uk Making Tax Digital
What If I Am Below The VAT Threshold?
If you are a VAT registered business and have a taxable turnover of under £85,000 you can voluntarily sign up for MTD. However, this will be mandatory by April 2022, unless you de-register for VAT prior to this date.
Is MTD Just For VAT?
MTD has currently only been implemented for the submission of VAT. However, HMRC is set to introduce this into other taxes.
Businesses with an income of over £10,000 will need to be MTD compliant for preparing and submitting their income tax returns for their next accounting period – starting on or after the 6th of April 2023.
At Northern Accountants, all the clients we have completed bookkeeping for are already using an MTD compliant software to prepare their records.
I have included a link (below) to a list of compatible software that can be used in compliance with MTD, including Xero, which is our software of choice:
What If I Am Not Signed Up For MTD?
If you are not signed up for Making tax digital, you can still sign up using this link: Gov.uk Sign Your Business for Making Tax Digital
Although Making Tax Digital has become law, those businesses who have missed the deadline set by HMRC to sign up will not yet be penalised if they have continued to submit and pay their VAT returns on-time.
If you have not signed up for MTD already, and your business has a taxable turnover that is over the VAT threshold, you must now sign up for Making Tax Digital.
If you need support with the MTD process or just some general advice on your business needs or accounts, Northern Accountants are here to help.