What is Making Tax Digital and what are the implications for my business?

What is Making Tax Digital (MTD)?

Making Tax Digital is a new tax administration system introduced by the UK Government in 2017 as part of HMRC’s Transformation Strategy.  It is designed to help individuals and businesses streamline and modernise their tax filing process.  By submitting digital records to HMRC on a quarterly basis, it is hoped that business owners will have better visibility of the financial status of their company, allowing them to spot potential problems a lot earlier, and resulting in more efficient and accurate tax returns. 

When Was Making Tax Digital Introduced and When Will It Affect Me?

MTD was introduced for VAT registered businesses and organisations with a taxable turnover above the £85,000 threshold in April 2019. As a result, any business that was earning over this threshold has been required to keep digital records and use HMRC compatible software to submit their VAT returns since 2019.

April 2022 saw MTD rolled out to any VAT registered business or trader, regardless of whether their taxable turnover exceeded the VAT threshold of £85,000.

The next roll out phase is planned for April 2024, when self-employed and property businesses earning over £10,000 will need to submit self-assessment returns through MTD.  

In April 2025, MTD Income Tax Self-Assessment (ITSA) will become mandatory for general partnerships (a jointly owned business by which two or more individuals share equally in all assets, profits, and financial and legal liabilities thereof) with a turnover of £10,000.

The final phase will take place in April 2026.  At this point, MTD for Corporation Tax will become mandatory for all businesses and organisations.

Why Has Making Tax Digital (MTD) Been Introduced?

Making Tax Digital was introduced to support HMRC’s ambition of becoming one of the most efficient and digitally advanced tax administrators in the world. In 2018 -2019 alone, mistakes in taxes cost the Exchequer over £2.8 Billion. The new MTD digital records system aims to be more efficient, more effective, and easier for taxpayers to file their taxes correctly, saving everyone money and time.

Will Making Tax Digital Cost Me Money?

As digital accounts records and online form submission are required for MTD, some businesses may need to update their software to comply.  However, any software costs incurred can be claimed back as a business expense.

If you have any questions regarding Making Tax Digital, please contact the team at Blue Roof Accountants – we are here to help facilitate a seamless transition to MTD. Contact our professional, friendly team of accountants today for any more information.

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