MAKING TAX DIGITAL
Know your Business…
What is MTD?
Making Tax Digital (MTD) is a fundamental change to the UK tax system. It is a Government-led plan designed to make it easier for individuals and businesses to calculate how much tax they owe. Every individual and business will have their own on-line Personal Tax Account.
Making Tax Digital (MTD) for VAT commenced on 1st April 2019 for all VAT registered businesses (taxable turnover above £85,000) for VAT periods starting on or after 1st April 2019.
There are a number of businesses whose start date has been deferred until 1st October 2019 if they fall into one of the deferred categories.
There are 2 key requirements under MTD for VAT:
1. Individual Transactions: Must be recorded digitally
2. VAT Returns: Must be submitted digitally to HMRC using compliant accounting software. HMRC lists Xero & FreeAgent as software that is compatible with MTD for VAT.
MTD for Income Tax will apply to the following four groups who receive income from:
1. Self – Employment (also known as unincorporated businesses / sole traders);
2. Property (landlords);
The Government has confirmed that the start date will not be before April 2020 at the earliest.
What Is The Main Change?
The main change is that the above four groups will no longer complete and file a Self-Assessment Tax Return every year (either on-line or a paper copy).
What Will I Have To Do Instead?
The key changes are:
1. Accounting Records: All accounting records must be maintained digitally or in a spreadsheet. Paper records will no longer be acceptable;
2. Quarterly Updates: All taxpayers must submit information quarterly to HMRC and finalise their tax position at the end of the tax year;
3. Software: The quarterly updates and end of year reports will need to be made using functional compatible software that can access HMRC’s API (Application Program Interfaces) platform. This means that individuals and businesses will need to acquire a suitable commercial software product or appoint an agent to submit information to HMRC on their behalf.
What Is Not Changing?
The three key areas that will remain the same are:
1. Income Tax rules;
2. Level of detail required to be submitted to HMRC;
3. Filing and payment deadlines.
The pilot is already open. It opened on 15th March 2018.
Anyone that meets the eligibility criteria and has MTD compatible software can now join.
The eligibility criteria for joining the pilot are:
1. Landlords: If you have income from letting UK property (excluding furnished holiday lettings);
2. Sole Traders: If you have income from one business and your current accounting period ends after 5th April 2018.
You cannot be made to join the pilot, it is entirely voluntarily.
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