Put merely, MTD is the federal government initiative to digitise the tax system and is being launched in a number of phases over the following few years.
Since April 2022, MTD for VAT has utilized to all VAT-registered companies, with MTD for Earnings Tax and MTD for Company Tax set to be launched in 2024 and 2026 respectively.
HMRC hopes the brand new system shall be fairer and extra environment friendly and make it simpler for companies and people to get their taxes proper.
On this article, we’re aiming to clear up any remaining confusion by busting 9 frequent MTD myths.
1. You’ll pay extra tax with MTD
Offered you’ve been doing all your tax returns accurately, you shouldn’t be paying any roughly tax than you had been already. MTD is simply making an attempt to account for the billions of kilos in unpaid tax that’s misplaced to avoidable errors and fraud yearly.
HMRC continues to be gathering the identical outdated taxes, it’s simply making an attempt to enhance the best way they’re calculated and reported in order that the system is fairer and extra correct.
2. All of your accounting should be 100% digital
Whereas MTD does require companies to maintain digital data, it doesn’t essentially require you to completely digitise your accounting.
For instance, you might be able to proceed sending paper-based invoices to your purchasers and receiving paper receipts – you simply want to verify this information is transferred to a digital format in your accounting software program as quickly as attainable.
That mentioned, a 100% digital accounting course of will make your life simpler by lowering admin and providing you with extra time to spend on the extra very important facets of operating your corporation. In case you use your accounting software program to subject invoices, that information is robotically digitised, without having to do handbook uploads later.
>See additionally: Making Tax Digital for VAT: 6 easy tricks to get your corporation prepared
3. MTD means I don’t have to submit a tax return
Below MTD guidelines, you continue to have to submit common returns, you simply have to submit them in a digital format.
In case you’re a VAT-registered enterprise, it’s best to proceed to submit quarterly VAT returns by way of your accounting software program.
This will even be the case with MTD for Earnings Tax when that comes into impact in 2024. Nevertheless, the Self-Evaluation tax return shall be changed by an annual ‘ultimate declaration’. In apply, which means by the top of your accounting interval, and 31 January annually on the newest, you need to submit an finish of interval assertion for each enterprise you personal detailing your corporation earnings and expenditure for that yr.
Then, by 31 January following the top of the tax yr, you need to make a single ultimate declaration of all your corporation and non-business earnings to calculate your tax and Nationwide Insurance coverage.
4. HMRC wants all of your accounting information
Whilst you is likely to be involved that MTD would require you to make extra of your accounting information accessible to HMRC, to this point, companies haven’t had to supply any extra information than they did below the earlier system.
Nevertheless, for MTD for Earnings Tax, you’ll have to present information extra regularly. Below the brand new system, you’ll be required to submit at the least quarterly studies to HMRC detailing your earnings, allowable bills, and any changes or reliefs.
There’s no authorized requirement for these studies to be utterly correct. As a substitute, these give each HMRC and also you a greater thought of your tax place, which can assist you to raised assess your money movement prematurely of getting to settle your eventual tax invoice.
5. I’ve an accountant, so I don’t have to do something for MTD
Sure, your accountant can proceed to organize your books and file digital returns in your behalf, however that doesn’t imply you’ll be able to overlook about MTD.
Your most important ongoing accountability shall be sustaining digital data in HMRC-approved accounting software program. Due to smartphones, this has by no means been simpler. You should use apps to ship digital invoices, evaluation paperwork, and even digitise paper receipts. Your accounting app will even can help you monitor your money movement and keep on high of taxes.
Be certain to debate record-keeping together with your accountant, as a way to agree on a constant and dependable course of and keep away from any trouble when deadlines are approaching.
6. MTD for VAT doesn’t have an effect on me as a result of I voluntarily registered my enterprise for VAT
When MTD for VAT was first launched in April 2019, voluntarily registered companies had been exempt.
Nevertheless, as of April 2022, MTD for VAT has been expanded to all VAT-registered companies no matter turnover, together with these which can be voluntarily registered for VAT.
>See additionally: Making Tax Digital for VAT post-April: What now?
7. MTD doesn’t have an effect on small companies
As mentioned above, MTD for VAT now contains all companies no matter turnover. Even the smallest companies now have to make use of software program to maintain accounting data and file digital returns.
Nevertheless, when MTD for Earnings Tax is launched in 2024, it is going to solely apply to companies with turnover over £10,000, and subsequently to basic partnerships with over £10,000 turnover from April 2025.
Any sole merchants, partnerships, or landlords with an earnings of beneath £10,000 shall be exempt.
Nevertheless, though HMRC hasn’t made any announcement but, there’s all the time the chance that this might change sooner or later.
8. I don’t run a enterprise so I can overlook about MTD
You won’t run a enterprise, but when, for instance, you’re a landlord with a single property, and your rental earnings is above £10,000, MTD for earnings tax will apply to you from April 2024.
Likewise, when you’re in full-time employment however have a aspect hustle as a freelancer that nets you a supplementary earnings of greater than £10,000, you guessed it, you’ll have to comply with the principles for MTD for Earnings Tax.
And that goes for any VAT-registered particular person too. Even when you simply promote a number of gadgets on eBay or Etsy, when you’re registered for VAT, you’ll should comply with the MTD for VAT guidelines.
I’ve checked and I’m undoubtedly not below the scope of MTD, so there’s nothing to do, proper?
You is likely to be proper, however HMRC is introducing different MTD-related initiatives that might have an effect on you when you’re a sole dealer.
Foundation interval reform
For many sole merchants, your accounting date (the date at which you draw up your accounts) and foundation interval (the interval for which you’re chargeable for tax) match the tax yr, 6 April to five April.
Nevertheless, some sole merchants, particularly those who have seasonal buying and selling or that work with overseas companies, select accounting dates and a foundation interval that don’t match the tax yr. This implies they are often taxed twice on their income of their first years of buying and selling, which they presently can’t declare again till their enterprise closes.
To make issues fairer, following a transition interval in 2023/24, all sole merchants or unincorporated companies, no matter when their accounting dates are, should use the tax yr for his or her foundation interval and 5 April for his or her taxable date.
A brand new points-based penalty system shall be launched in January 2023.
As a substitute of receiving an instantaneous superb for a late submission, you’ll incur factors. When you attain a sure threshold for factors, you’ll be fined.
This presently solely applies to MTD for VAT however will even apply to MTD for Earnings Tax from April 2024, and to all Self-Evaluation submissions from April 2025, though they don’t fall below MTD.
Subsequent steps for Making Tax Digital
Hopefully, you’re now clearer on how MTD applies to your corporation and what your obligations are.
In the end, MTD ought to make it simpler so that you can get your taxes proper and to make sure that you’re paying a good and right amount of tax to HMRC.
As all the time, when you do have any questions or considerations round MTD, be certain to talk to your accountant or one other tax skilled or you could find a number of sensible recommendation in Sage’s Making Tax Digital content material hub.
This text was written as a part of a paid-for content material marketing campaign with Sage