What is changing and who does it affect? Believe it or not, Making Tax Digital (MTD) was announced in 2015 … but implementation is in stages, and so far we are only at the beginning of the process. So where are we now and what is coming up?
What MTD changes happen when?
April 2019 – MTD for VAT for VAT registered business with sales over £85,000
April 2022 – MTD for VAT for all VAT registered businesses
April 2024 – MTD for Income Tax Self Assessment (ITSA) for all self-employed and landlords (delayed from April 2023)
April 2025 – MTD ITSA for simple partnerships (not Limited Liability Partnerships (LLPS) or complex partnerships)
Which means the implementation date of MTD ITSA for LLPs and MTD Corporate Tax Self Assessment (CTSA) for Limited companes has not been confirmed, although HMRC has confirmed it will not be before April 2026 … which obviously leads to speculation that it will be April 2026!
What does MTD require?
The core of MTD is all about better and digital reporting to the taxman – the first part being that every business needs to use a digital software to link it to HMRC’s software. No longer can you simply type your totals into a screen on the taxman’s computer. Now your digital bookkeeping app needs to communicate computer to computer to upload information to HMRC.
Initially this digital link reporting was for VAT returns for larger VAT registered business. From April 2022 this will be extended to all VAT registered business and from April 2024 to all income tax businesses with a gross income of £10k or more.
What does MTD for ITSA mean?
From April 2024 we have the next change which is MTD ITSA. Anyone liable to income tax who has an annual gross income of £10,000 or more are caught by these rules. Note that this could be £5,000 rental income and £5,000 self-employed income, or all rental income, or all self-employment.
MTD for ITSA requires the same digital link or computer-to-computer upload as VAT. It also requires 4 quarterly reports to be made. The quarterly reports are to be a summary of the financial transactions in the quarter. This is a change from annual reporting 10 months in arrears to quarterly reporting 30 days in arrears. There is also a 5th report or End of Period Statement which will be similar to the current self-assessment tax return for the self-employed and landlords.
What does MTD mean for keeping records?
As well as requiring computer-to-computer reporting, MTD also includes a number of changes to the details of what you need to do to keep your records.
1) You need to keep digital records of all business income and expenses.
2) Your digital app has to be a MTD compatible software.
3) From April 2024 all MTD ITSA businesses will report and pay tax on a tax year basis – meaning your accounting year end will automatically change to be 31 March or 5th April. If it isn’t already this might mean a higher tax bill in the transition year.
4) Each individual sale or purchase needs to be recorded in detail.
5) You must keep digital copies of all purchase or sale documents for at least 6 years.
6) If you have more than one software to keep records then they need to be digitally linked in some way, ie you can’t manual transfer data from one app to another.
What do you need to do to be MTD compliant?
1) Use a MTD compliant record keeping app.
2) Update your records on a monthly or quarterly basis.
3) Make sure you record everything, ie don’t miss things out.
4) …get advice from your friendly accountant!
At JVCA the friendly accountants we have been using MTD compliant apps for years and have plenty of expertise and advice to share … so get in touch and let us help!