Making Tax Digital (MTD) is moving along at apace, taking effect for income tax for many from April 2024. What else is on the horizon for business and what can you do to get ready for MTD?
What is MTD?
MTD is the Government’s flagship policy to modernise the UK tax system, making it easier for business owners and helping them eliminate mistakes that ultimately cost the Treasury billions of pounds in lost taxation a year.
There are three main parts of MTD: VAT, income tax self-assessment (ITSA) and corporation tax.
The aim is to create digital tax accounts that can be accessed online in a similar fashion that online banking works. On the tax account, users will be able to easily access information about their taxes, which will be used to work out an individual’s or business’s tax liability.
In April 2022, the Government rolled out MTD for VAT to include every VAT-registered business, regardless of their turnover.
Next up is MTD ITSA. It was originally meant to be introduced in April 2023, but the Government pushed the scheme back by 12 months to give businesses more time to prepare for the changes and financially recover from the pandemic.
It might sound, therefore, like MTD ITSA is a way off, but it will come round faster than you think. Plus, getting ready now gives you more time to prepare for your new responsibilities.
Who will MTD ITSA affect?
MTD ITSA will affect most self-employed taxpayers whose business turnover is more than £10,000 a year. The new rules also apply to landlords (who don’t operate through a limited company) with gross rental income over £10,000. For now, general partnerships are to be excluded.
All unincorporated businesses will be required to file quarterly returns on or before 5 August, 5 November, 5 February, and 5 May every year.
Quarterly returns are thought to be similar to the current format for self-assessment tax returns, consisting of total sales and expenses that arise every three months.
You will also have to file an end-of-period statement on or before 31 January that follows the end of the relevant tax year, every year.
From 6 April 2025, most unincorporated business partnerships that have business or property income above £10,000, and whose partners are all individuals (rather than companies), will also have to abide by MTD ITSA rules.
Exactly when all other partnerships, including corporate partners and limited liability partnerships, will have to join is yet to be determined.
Cloud accounting software
To stay compliant with MTD, you have to keep digital records which could be achieved by using cloud accounting software that links to HMRC’s systems for MTD purposes, such as Sage, Xero or Quickbooks.
Alternatively, you can use regular spreadsheets to keep track of your records – as long as they also use special bridging software that links to HMRC’s systems.
There’s more to cloud accounting than just MTD, as the right one will be able to streamline your processes, collect your financial data and much more.
Talk to us for guidance on using cloud accounting software and MTD.