What the new Making Tax Digital programme will mean for businesses

Please note the software I use for your returns – Tax Calc is already compliant in MTD and I will be able to file your new quarterly returns based on the information you give me, I am hoping there will not be too much change in the way we have been working, but HMRC do change the goal posts so I will keep you informed – Karen

What the new Making Tax Digital programme will mean for businesses

22 Jul 2020

HMRC has put Making Tax Digital for Business (MTDfB) back on the agenda in a big way by revealing an ambitious plan to introduce it to small firms starting in 2022.

Businesses will have little more than a year to recover from coronavirus and the introduction of IR35 and the Construction Industry VAT Reverse Charge Scheme – both of which arrive next Spring – before they grapple with the challenges of digital record-keeping.

Through MTDfB, HMRC aims to get all but the smallest of unincorporated businesses and private landlords (the self-employed) on to real-time record keeping.  Under MTDfB, they will file regular updates of their income and expenditure using MTD-compliant software. This will happen at least quarterly.

Timeline

The Government has an ambitious appetite to push on with the roll out of MTD, as follows:

  • From April 2022 – the voluntarily VAT-registered (VAT-able turnover below £85K) will be required to digital tax service’ and move to keeping digital VAT records and submit VAT returns using MTD-compliant software.
  • From the first day of their annual accounting period starting in the 2023/24 tax year, income tax requirements will apply to the self-employed with annual turnover above £10K.

There is a new determination to change the way the self-employed are taxed and managed. This arises from the Chancellor’s difficulties in devising a workable and fair coronavirus support scheme for the self-employed.

HMRC comments:

‘This period has emphasised the value of having access to real-time data and a more up-to-date overview of taxpayers’ financial position. Real-time data would have provided the Government with a more accurate picture of the trading and profit levels of the self-employed enabling support to be better targeted.’

‘We will also look at the long delay before the self-employed need to register and submit trading data. With earlier registration and information, it would have been possible to support those who recently set up in business, without exposing the scheme to fraud or organised criminal attack. This will form part of broader work to update the tax administration legislative framework.’

MTD Pilot

HMRC’s timetable allows the self-employed and their agents time to plan and gives software providers enough notice to bring new Making Tax Digital products to market, including free software for businesses with the simplest tax affairs.

HMRC will expand its pilot service from April 2021 to allow the self-employed to test the full end-to-end service ahead of mandation.

What about companies?

The Government will also consult in the Autumn on the detail of extending Making Tax Digital to incorporated businesses with Corporate Tax obligations.

Summary

The Government’s revitalisation of MTD goes a lot further than expected and leaves licenced accountants and AAT members working in finance teams with a steep learning curve as they get back up to speed on MTD over the coming months. 

Those in practice or providing services to the smaller businesses should familiarise themselves with what is coming as soon as possible and start to plan how you can help your clients to achieve compliances with the new challenges that lay ahead. It is vital that you keep abreast of what is required, your client’s / employers rely on you to give them the advice that they need at the right time.

David Nunn is Content Manager at AAT.

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