07 Aug
Making Tax Digital- Deadline extended
MTD extended to roll out in 2022
The revolutionary idea to digitise tax in the UK known as “Making Tax Digital” (MTD), was recently extended for all VAT- registered businesses. The extension is until April 2022 while for most entrepreneurs and individuals it will go up to April 2023.
The first draft of the UK government’s ten-year plan to digitise the tax monitoring system was set out recently. The draft included the restart of the programme to making tax digital. Previously, the progress was negatively affected because of Brexit and then due to the pandemic. The current progress was slower than the Treasury had expected.
Previously, the UK government made it mandatory for VAT-registered business owners to enter the MTD regime. The registration was compulsory if a businesses taxable turnover was above the VAT threshold, £85,000. Reportedly, there were one million business owners, who did not have to register for MTD due to VATable sales being lower than the VAT threshold, even though they were VAT registered.
However, with new developments, it is now compulsory for all trades, registered with VAT, to file their VAT returns through MTD compatible software. The compulsion is for the VAT period starting on and after April 1st, 2022, along with the requirement of keeping digital records.
Making Tax Digital: What is it?
Making Tax Digital is the initiative HMRC took to digitise the tax records and to make it easier for businesses to get their tax affairs straight. The plan involves paperless record-keeping, and HMRC has already started phasing the procedure in from April 2019. HMRC plans to eventually introduce the programme for income tax and corporation tax to make it a complete digital ecosystem for businesses and individuals.
MTD for Businesses
The Strategy of Making Tax Digital sits in the government’s broader perspective of “Digital Britain”, the idea is to make the tax system digital and paperless, as a small part of the overall digital strategy for Britain. HMRC will implement the initiative in different phases with VAT-registered businesses to comply with the programme on priority.
MTD for VAT
HMRC encourages voluntary registration for the “Making Tax Digital” programme even if the taxable turnover of the business is below the threshold of £85,000. The listing will improve government services for the tax system as the accounting software would help small businesses to keep all tax information digital to avoid tax penalties.
If digital record-keeping seems intimidating to you, you may want to hire professional accountants to help you sign up for the MTD programme as an agent.
Records to Keep
According to HMRC’s rules for making tax digital, the records you are required to keep should show the business name and their contact details. You must retain all the records up to date regarding VAT numbers, details of any VAT schemes used, VAT on the transferred or received supplies, and any adjustments to VAT returns.
The minor details are critical in the record-keeping as you must record tax points and the rate of VAT charged on supplies made. If the compatible software you are using does not record reverse charge transactions, you need to log them twice as supplies received and made. In case you use a retail scheme, you are required to keep Daily Gross Takings (DGT).
While using the Flat Rate Scheme, you must record all the purchases of assets on which you can reclaim tax. Only if it is applicable, then you may need to keep the value of sales made and total tax turnover on purchases while utilising the Gold Accounting Scheme. Any documents stating multiple supplies transferred or received by a third party on behalf of your business are also required.
MTD for Income Tax
Though it is not yet compulsory for self-employed people or landlords, they can also sign up for this pilot scheme. They can keep digital records and to update HMRC about income tax, while avoiding complexities of self-assessment tax returns.
You will need to provide a summary of income and expenses every three months to HMRC. HMRC will then estimate the payable tax. You will send a final report at the end of the accounting year. At this point, you can claim any relief or allowances after the calculations.
MTD for Corporation Tax
HMRC is trying out the pilot scheme of making tax digital for VAT. The digitisation of corporation tax depends on the success rate of the VAT digitisation process. However, the only information about its introduction is that the earliest it can be is in 2021.
Why MTD?
The system of making tax digital will eliminate unnecessary paperwork, errors and frauds. Moreover, it will allow businesses to understand cash flow and the financial position of the business in the market better. This better understanding will further improve future collaborations with other trades in the industry.
With the initiative of digital tools, cloud accounting technology, and online record keeping, you will no longer worry about collecting unreliable or incorrect information. The program intends to improve gov.uk and its other collective programs by registering taxpayers and improving interdepartmental communication. The initiative will omit any chances of fraud and delays in tax returns.
Video: 5 things you need to know about making tax digital for business
What is the Quick rundown of the things you need to know about Making Tax Digital for business and what is the update of March 2020? Watch the video for complete detail.
Step by Step Guide
If a VAT-registered business owner has still not registered with the new tax regime, we have provided a step by step guide. Here are the steps to follow:
- Use a Compatible Software( If you are unsure about which software to use, our London accountants can help, contact us to learn more)
- Sign up for MTD and verification
- Authorise the software
Compatible Software
The First step to register in the digital tax regime of the UK is to choose from the two options:
- Use a compatible software package with which you can digitally record and submit your VAT returns.
- Or use a moderating software, what HMRC calls “bridging software”. Bridging software can become a link between non-compatible packages and HMRC systems.
We suggest that you use cloud software as it has the potential to reduce digital challenges. Cloud software is the most effective in the industry. It does not need manual updates, nor it hosts any errors or bugs. You may refer to HMRC for a list of compatible software.
Sign Up for MTD
The second step will be to sign up for MTD immediately if you have not already registered yourself. To sign up for MTD with HMRC, register yourself on the HMRC website. Once done, you will have to log in to your HMRC account from a compatible software for MTD.
It is important to consider that HMRC might take up to a week to verify you. So it is vital to sign up a few days prior as in few cases it may take longer. If the registration process for MTD seems complicated to you, you may want to speak to a VAT accountant.
Verification
After successfully signing up, HMRC will send you a confirmation email, on the email address used when registering. You will receive the email within 72 hours with no further financial information requirements. If you do not receive such confirmation email within that time, you may want to check your spam folder.
Authorisation of the Software
You need to authorise your software for the business before you submit your VAT returns to HMRC. If you do not know how to do this, you may talk to a software provider or let your business accountants do it for you.
The software authorisation is very critical as it allows you to use the software without facing any external security issues. The limited access also enables a few users to handle sensitive financial information.
Conclusion
The latest initiative to digitise the tax system by the government gives businesses a new opportunity to improve their internal financial control to better utilise the benefits that come with digitisation and automation. However, every innovation brings with it new challenges, complexities and changes that might be hard to manage.
Therefore, we suggest you stay updated with the latest developments on the digital reforms and the laws surrounding it, in order to avoid any inconvenience and discrepancies. It is best if you use professional accounting services so that you can grow your business without worrying about technical complications.
Clear House Accountants are specialist Accountants in London who have skilled and expert accountants to help you prepare for all your compliance challenges. They have worked with thousands of clients and helped them stay updated with complicated regulatory changes keeping them ahead of the market competition.
Author Bio
Jibran Qureshi FCCA is the Managing Director of Clear House Accountants, and has over 10 years of experience in practice and across multiple industries. Jibran’s educational background includes a Master’s in Financial Strategy from Oxford University and an Executive MBA from Hult International Business School. His experience in Financial Strategy, Tax Planning, Operational Consultancy and Performance Reporting guide his cognizant approach to leading Clear House and its clients to the future. It was this dexterity that led him to be Enterprise Nation’s Top 50 Advisors.
Jibran is fueled by his passion for helping businesses. He unequivocally believes that as business advisors and accountants for our clients, it is our responsibility to work with them as business partners. As specialists, it is our duty to help our clients navigate through the complexities of constant change and the implications that come with it.
Over the past decade, innovative disruptions have changed the way businesses work, everything from cloud software, innovative business models, to AI and machine learning, have impacted how businesses operate, grow, and expand.
Jibran recognized the need to manage these disruptions sustainably, early on and shaped Clear House Accountants to not just be compliance specialists, but advisors who help build complex ecosystems around cloud accounting software, provide advice on funding support, help manage innovative tax schemes, set up and implement complex strategic plans, and much more. So, his clients can thrive, not just survive.
Jibran developed his prime role as the Managing Director to build Clear House’s capabilities so it can add value for their clients. He is of firm belief that this can be done through consistent high-level training, building the right tools, and creating roadmaps to help businesses cope with prospective disruptions. He envisages that every client that comes on board, is provided maximum value through onboarding, ongoing services and the right mix of tools to help them become the best in the world.