We are getting ever closer to an overhaul of the tax reporting system in the UK and even though the self-employed will only have to comply from 6th April 2024, it is certainly worth looking into the requirements in advance.
If you currently use paper based records (such as a Simplex D cash book) then you will definitely have to change the way in which you prepare and maintain your business records. If you use spreadsheets it is possible to use bridging software in order to comply.
If you currently use paper based records (such as a Simplex D cash book) then you will definitely have to change the way in which you prepare and maintain your business records. If you use spreadsheets it is possible to use bridging software in order to comply.
Making Tax Digital Timetable:
- VAT:
- From April 2019, most VAT registered businesses with turnover exceeding the VAT registration threshold have had to retain digital records and submit their VAT returns to HMRC using 'functional compatible software'.
- From April 2021, 'digital links' between software programs, applications or products have had to be in place.
- From April 2022, this includes all VAT registered businesses unless an exemption such as digital exclusion applies. This includes those below the VAT registration threshold.
- Income Tax:
- From April 2024, self-employed businesses and landlords with business turnover above £10,000 are to report under MTD for Income Tax.
- From April 2025 general partnerships join MTD.
- Corporation Tax:
- From April 2026 companies join MTD for CT.
So what is Making Tax Digital?
Making Tax Digital (MTD) is a government initiative which aims for the UK to “have one of the most digitally advanced tax administrations in the world” and promises to “transform tax administration so that it is easier for taxpayers to get their tax right”.
What is changing under MTD for income tax?
Self employed business owners and landlords with turnover more than £10,000 a year will have to follow the new rules from 6 April 2024.
Partnerships will follow from 6 April 2025.
Instead of submitting an annual self assessment tax return to HMRC, the requirement for those affected will be to submit four quarterly updates about their business income and expenditure. At the end of the tax year, they will also have to send an EOPS (end of period statement) and final declaration (which replaces the current tax return).
Records will need to be kept digitally.
It is currently understood that the timing of Income Tax payments will not change although in the future this may eventually change to payments being required four times a year.
Making Tax Digital (MTD) is a government initiative which aims for the UK to “have one of the most digitally advanced tax administrations in the world” and promises to “transform tax administration so that it is easier for taxpayers to get their tax right”.
What is changing under MTD for income tax?
Self employed business owners and landlords with turnover more than £10,000 a year will have to follow the new rules from 6 April 2024.
Partnerships will follow from 6 April 2025.
Instead of submitting an annual self assessment tax return to HMRC, the requirement for those affected will be to submit four quarterly updates about their business income and expenditure. At the end of the tax year, they will also have to send an EOPS (end of period statement) and final declaration (which replaces the current tax return).
Records will need to be kept digitally.
It is currently understood that the timing of Income Tax payments will not change although in the future this may eventually change to payments being required four times a year.
Deadlines
The deadlines for submitting quarterly updates will be the same for everyone who has to follow the MTD for ITSA rules. From the start of the tax year on 6th April, these deadlines are:
The deadlines for submitting quarterly updates will be the same for everyone who has to follow the MTD for ITSA rules. From the start of the tax year on 6th April, these deadlines are:
- 5th August (for April/May/June)
- 5th November (for July/August/September)
- 5th February (for October/November/December)
- 5th May (for January/February/March)
Tax penalties
HMRC have stated that it will not apply any penalties in respect of late submissions for MTD, for a period of one year. Then there will be a new points based system for penalties.
Penalties for errors and mistakes will continue to apply.
What does ‘keeping digital records’ actually mean?
Recording data from a business transaction in a digital format creates a digital record.
You can choose whatever digital format suits your needs. Whether this is a spreadsheet (and you can link it with bridging software) or a cloud based accounting system like Clearbooks, Xero, Quickbooks or Sage. You can use whatever you feel comfortable with and what meets the needs of your businesses.
You are only required to digitally record the following data points from each transaction for MTD:
You will want to record more than the information above like supplier name etc but that is the bare minimum in order to comply with MTD.
Retailers can use daily totals rather than each transaction if they do not have digital transaction software.
HMRC have stated that it will not apply any penalties in respect of late submissions for MTD, for a period of one year. Then there will be a new points based system for penalties.
Penalties for errors and mistakes will continue to apply.
What does ‘keeping digital records’ actually mean?
Recording data from a business transaction in a digital format creates a digital record.
You can choose whatever digital format suits your needs. Whether this is a spreadsheet (and you can link it with bridging software) or a cloud based accounting system like Clearbooks, Xero, Quickbooks or Sage. You can use whatever you feel comfortable with and what meets the needs of your businesses.
You are only required to digitally record the following data points from each transaction for MTD:
- Date of the transaction
- The expense category (for income tax)
- Amount or value
- Rate of VAT charged on a sale (for VAT)
- Amount of VAT to be claimed on a purchase (for VAT)
You will want to record more than the information above like supplier name etc but that is the bare minimum in order to comply with MTD.
Retailers can use daily totals rather than each transaction if they do not have digital transaction software.
If you have any questions about Making Tax Digital, or any other accounting needs, you can contact me here.
Or if you'd like regular tips and advice then you're welcome to follow me on Facebook and/or Twitter.
Or if you'd like regular tips and advice then you're welcome to follow me on Facebook and/or Twitter.
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