Making Tax Digital is coming and will ultimately roll out to affect every business in the country. The Government have recently announced some changes which will affect your responsibilities. If you’ve already made preparations, you may need to change some of your plans. The changes will also affect when you need to enrol.
Here’s what you need to do to prepare and what the new changes mean for your business.
Making Tax Digital: the basics
The Government introduced the Making Tax Digital (MTD) initiative to encourage small businesses and self-employed people to file their tax returns digitally. The main aim of this was to increase accuracy and help businesses grow by simplifying their tax returns. The regulations are being rolled out gradually, but eventually, all businesses will need to move away from paper records towards digital ones to comply with the law.
Businesses will need to start keeping digital records and using accounting software compatible with MTD to manage their accounts and file tax returns. HMRC has a list of compatible software. https://www.tax.service.gov.uk/making-tax-digital-software
Which businesses does MTD currently apply to?
The Making Tax Digital rules already apply to VAT-registered businesses. This was introduced in April 2019 and initially only affected businesses whose turnover was over the VAT threshold of £85,000. Since then, it’s been extended to cover all VAT-registered companies. So if you’re VAT-registered, you won’t be able to use your old VAT account any longer and need to file your returns using accounting software.
The new rules will also apply to complex businesses and organisations, including trusts, non-profits and public bodies. However, there don’t currently appear to be any plans to extend the rules to add corporation tax returns to Making Tax Digital.
Making Tax Digital for income tax and landlords
You might have been preparing to comply with the MTD rules starting in April 2024, which applied to anyone filing a self-assessment return with an income of more than £10,000 a year. However, this has now changed. MTD will be introduced using a phased approach starting in April 2026. If you’re a business or landlord earning more than £50,000 annually, you’ll need to start using accounting software from April 2026.
If you’re a self-employed person or landlord earning between £30,000 and £50,000 per year, you’ll have a little longer as MTD won’t apply to you until April 2027. Unfortunately, the Government hasn’t provided guidance on when businesses earning less than £30,000 per year will be asked to comply with the new rules.
What you need to do
You might think that you don’t need to act yet, given that the Government has extended the current deadline by over two years for larger businesses and indefinitely for some smaller companies and self-employed people. However, MTD will be a significant change for most businesses, particularly as you’ll need to provide HMRC with quarterly returns as opposed to annual returns as we do now.
If you don’t currently use accounting software, it’s a good idea to investigate your options and what each platform offers. You may also want to start working with an accountant who can file your quarterly returns for you without adding to your workload. Signing up early gives you more time to get used to the new system and find an accountant if you want to.
We mainly use Xero accounting software which is MTD compatible, and we’re already helping our clients to comply with the new rules.
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