Making Tax Digital (MTD) is the biggest tax shake ever, with HMRC aiming to make the UK “one of the most digitally advanced tax administrations in the world”.
While there have been some transfer deadlines, the MTD is here to stay.
Read on for a closer look at some of the key delays and changes to the MTD, as well as the requirements for VAT, income tax and corporation tax.
Here’s what we cover:
What is Tax Digitization?
a central pillar of Tax Digitization It is that taxpayers will give details of their revenue and costs to HMRC at least four times a year, so will have an accurate, up-to-date picture of how much tax is owed throughout the year, rather than leaving everything for one annual tax return.
HMRC is introducing Making Tax Digital in phases.
MTD for VAT started from 1st April 2019, which means digitizing tax became law Over the VAT threshold of £85,000 for VAT-registered businesses.
From April 2022, MTD applies to all VAT businesses (including those below the VAT threshold).
Then from April 2026, MTD for Income Tax Self Assessment (also known as MTD for Income Tax or MTD for ITSA) will be applicable.
This means that some sole traders and landlords will need to start reporting their earnings using the MTD.
And before 2026, incorporated businesses will have to follow the MTD for corporation tax.
HMRC claim Digitizing taxes will lead to a more effective and efficient tax system, allowing taxpayers to file their tax returns more easily and with greater accuracy.
For some, an eventual MTD will mean giving more information to HMRC and on a more regular basis, but much of the work required to complete the various stages of the MTD will be automated.
using the cloud accounting softwareYou can use the MTD as an opportunity to actually reduce your tax-related admin burden, leaving you more time to focus on activities that add more value to your business.
Delays and changes so far in making tax digital
according to mtd policy paper First published by the government in December 2015, the MTD was originally intended to go live by the end of 2018 for most businesses, including sole traders and landlords.
Tax digitization implementation has taken longer than expected, with various delays/changes announced by the government:
- mid 2017, the government announced that it is giving taxpayers more time to adapt to the MTD. Only businesses with a turnover above the VAT threshold of £85,000 will need to switch to MTD for VAT, and only until April 2019. In addition, the government said no one would be asked to use the MTD for other taxes and to update HMRC on a quarterly basis until at least 2020.
- in 2020With the onset of the coronavirus pandemic, the government prompted further delays to the MTD as it sought to relieve pressure from already struggling businesses. The so-called soft landing for MTD implementation was extended till April 2021. it meant digital linking rules was temporarily relaxed to allow copy and paste to continue for a limited period.
- in July 2020The government said that VAT-registered businesses that had signed up for voluntary VAT whose turnover was below the £85,000 threshold would be required to switch to the MTD from April 2022. It also said that sole traders and landlords with a turnover of more than £10,000 would be required to comply. MTD for income tax rules for their first completed accounting period starting after April 2023.
- in October 2020The government announced that making tax digital for corporation tax would be implemented from 2026 at the earliest.
- in September 2021The government deferred MTD for income tax till April 2024. It was expected to become law in April 2023 and would affect four million self-employed people and landlords with business/property income of more than £10,000.
- in December 2022then the government MTD for Income Tax postponed for the second time, As it stands, the scheme will be rolled out in two phases, with self-employed people and landlords earning more than £50,000 subject to rules from April 2026, and those earning more than £30,000 from April 2027. with.
What do delays and changes mean to you?
Although there have been some delays, HMRC has mapped a course for taxpayers to do as much online as possible.
If you’re running a business, you’ll most likely need to switch to accounting software and get some digital capabilities sooner or later.
As it stands, businesses with a turnover of £30,000 or less will not need to comply with the MTD for income tax, although they may fall under the MTD for VAT rules if they are VAT registered.
the good news is HMRC-accredited accounting software Available to ensure that the switch to MTD is as seamless as possible.
Your accounting software will provide regular and timely data to HMRC, so having the right software is essential to being MTD ready.
However, there may be more to catch up with for businesses that have never dealt with accounting software or apps before and that have little or no use of the Internet in their business.
Taking the time now to get used to the software will certainly be beneficial, before the relevant MTD implementation dates. If you need support with this, talk to the software vendor or an accountant if you have one.
Also, the delay in MTD for income tax means that businesses that have to comply with its rules will have more time to prepare.
Tax Digitization for VAT Software
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Tax Digitization for VAT, Income Tax and Corporation Tax
Here’s a quick roundup of what you need to know about the different stages of MTD.
VAT-registered business Those with a taxable turnover of more than £85,000 are required to comply with the Making Tax Digital rules from April 2019.
This means that they should keep digital records and file VAT returns through functionally compatible software.
From April 2022, VAT registered businesses are included under the threshold – meaning that all VAT registered businesses need to comply with the MTD for VAT rules.
Only those who can successfully argue ‘digital exclusion’ – those who can show they are unable to use apps and accounting software because of factors such as their Aadhaar, religion or disability – are exempt.
Those with more than £30,000 in annual turnover will have to comply with the rules from April 2027.
Companies will not be required to report under MTD for corporation tax purposes at least till April 2026.
HMRC expects to launch a pilot scheme allowing companies to start filing using the MTD for corporation tax from April 2024.
FAQs on MTD Delay, Variation and Extension
Can I still use bridging software for MTD?
yes you can use bridging software How to File VAT Submission with Spreadsheet – With VAT returns, you are now on to include digital links with your original records.
You should still be able to use a spreadsheet with bridging software to MTD for income tax.
What is the time frame for MTD?
From April 2022, almost all VAT-registered businesses will have to comply with the MTD for VAT, regardless of earnings,
Four years later, in 2026, sole traders and landlords with a turnover of more than £50,000 will fall under the new MTD for income tax rules, while those with an income of more than £30,000 will have to follow the rules from April 2027.
The MTD for corporation tax will eventually apply to all incorporated companies, although it is not expected to become mandatory until at least April 2026 at the earliest.
Is there a delay in making tax digital phase 2?
Step 2 may refer to requiring all VAT-registered businesses to apply MTD for VAT from April 2022.
However, the term can also be used to refer to the MTD for the income tax go-live date, which is now from April 2026/2027. For Sole Traders and Landlords.
The MTD for income tax was supposed to start from April 2023, but the government announced a delay to September 2021 and a second delay to December 2022.
Has soft landing been extended to digitize taxes?
Yes, HMRC announced a ‘soft landing period’ for businesses adopting the MTD for VAT in April 2019, allowing them to copy and paste from one application to another until April 2020.
Due to the pandemic, the government extended the soft landing period for one more year till April 2021.
However, businesses must now use the proper digital link for VAT returns – copying and pasting of data is no longer allowed.
There is no expectation of soft landing period for MTD for income tax.
Digitizing Taxes is an opportunity to completely digitize your tax administration.
automation that cloud accounting software This means that most of the work associated with MTD can essentially be done for you.
This means you can spend more time running your business and creating value for your customers.
Editor’s note: This article was first published in November 2021 and has been updated for relevance, Following Delay in making tax digital for income tax,
Tax Digitization for VAT Checklist
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