Its been strangely quiet on the topic of Making Tax Digital (MTD) for some time now, and you might be forgiven for thinking that the drive to modernise the tax system had gone away. However, on 21 July 2020, the Treasury Department announced plans for the next stage of the ten-year modernisation process.
Who will be affected by the changes?
The current VAT threshold, over which businesses must maintain digital records and submit their returns through one of the compatible software providers, stands at £85,000. Under the next stage of the programme, the threshold is set to be removed, and all VAT registered businesses will be required to complete their reporting processes through the digital system.
The deadline for businesses to enact a change is 1 April 2022, and the following year (6 April 2023) will also require individuals filing self-assessment tax returns for over £10,000 of income to join the programme. These individuals (including many landlords and self-employed) will then need to keep digital records and update HRMC quarterly via compliant software.
The MTD benefits
While some may perceive the changes as another obstacle to overcome, many small businesses who fall under the current threshold have already made the change. Since its launch in 2019, more than 1.4 million businesses have enrolled in the MTD programme, and 30% of smaller VAT registered businesses who are not currently obliged to submit their returns through the system have voluntarily opted to. For those smaller business who have already made the switch in advance of the April 2022 deadline, the decision has been driven by the benefits of the system, including reduced capacity for error and increased productivity.
Benefits of moving to the MTD programme include:
- Less paperwork to deal with
- Instant access to your accounts anytime and anywhere
- Fewer mistakes and reduced chances of HMRC fines
- Easier bookkeeping using digital software
- Automated processing of receipts and invoices
- Latest tax information, invaluable for making key decisions
- Additional tools available such as planners, trackers and forecasters
Making Tax Digital FAQs
Do I have to purchase a software package? A business must use HMRC compatible software to meet the MTD requirements. So, if you are not currently using a compatible software package you will need to purchase software yourself or get your accountant to maintain your records and file your VAT return digitally on your behalf.
There are lots of software packages available on the market for small and medium sized businesses, the most well-known are Sage, Xero and QuickBooks but there are many more. Accounting Web provide a good overview of the available software options. Ask your accountant for advice on the most appropriate option for you.
Can I still keep my records manually and simply file the VAT return through the HMRC VAT portal? No. The new regulations mandate that businesses must keep digital records in compatible software, which can connect to HMRC via an Application Programming Interface (API).
Do Excel spreadsheets count as compatible software? Not on their own. HMRC has stated that records can be maintained on spreadsheets, but there has to be some linking/bridging software that can communicate with HMRC’s API in order to comply with MTD for VAT.
Do I need to provide information more often? No business will need to provide information to HMRC more regularly than they do now. Where businesses have alternative reporting arrangements, these will be maintained. Businesses submitting monthly or nonstandard returns will continue to do so as long as they keep digital records and submit their annual or monthly VAT return through functional compatible software.
When to make the change?
If you think that you will be affected by the changes coming in 2022/2023 then why not take advantage of the benefits now and make the change sooner rather than later. At Kingston Burrowes we can support you will this change by providing guidance on the software options, supporting you with set-up, and providing general advice to make the most of your new software.
For further advice and a no obligation discussion, please contact the team on 0207 8912 2040 or email firstname.lastname@example.org