Making Tax Digital (MTD) is a government initiative that is changing the way businesses in the UK keep records and submit tax returns. MTD requires businesses to keep digital records of their income and expenses and to submit VAT returns quarterly using software that is compatible with MTD.
MTD is being introduced to make it easier for businesses to get their tax right. By requiring businesses to keep digital records and submit returns electronically, MTD will help to reduce the number of errors in tax returns and make it easier for HMRC to identify and investigate tax evasion.
HMRC also believes that the move to digital records and submissions will help to reduce the administrative burden on businesses, freeing up time for them to focus on growing their business.
The key requirements for Making Tax Digital are as follows:
Making Tax Digital applies to businesses with taxable income over the VAT registration threshold of £85,000. This includes sole traders, partnerships, and limited companies. Businesses below the threshold may still choose to comply with MTD if they wish.
The key requirements of Making Tax Digital are:
MTD for VAT: MTD for VAT was introduced in April 2019 for businesses with a taxable turnover of over £85,000. In April 2022, MTD for VAT was extended to all VAT-registered businesses.
MTD for Income Tax and Self Assessment: MTD for Income Tax and Self Assessment is currently only a requirement for businesses with annual turnover above £100,000. However, it is expected that MTD for ITSA will be extended to all businesses.
If you are a business that is affected by MTD, you will need to start keeping digital records and submitting VAT returns quarterly using software that is compatible with MTD. You can find more information about MTD on HMRC’s website.
There are a number of ways to comply with Making Tax Digital. You can:
Making Tax Digital is a significant change for UK businesses, but it also provides an opportunity to improve efficiency and accuracy when it comes to managing taxes. By understanding the requirements of MTD and preparing for implementation, businesses can ensure compliance and take advantage of the associated benefits.
Making Tax Digital has a number of benefits for businesses. It can help businesses to:
Setting up a limited company comes with both advantages and disadvantages. Private companies are generally more flexible regarding regulations, but they may be unable to access specific sources of capital.
On the other hand, public companies can issue shares on the stock exchange, have more complex financial rules, and require higher levels of disclosure than other types of businesses.
If you are struggling to comply with Making Tax Digital, there are a number of sources of help and advice available. HMRC offers guidance on its website, as well as support for businesses in the form of webinars and workshops.
There are a number of ways to get help with Making Tax Digital. You can:
Making Tax Digital for VAT is a requirement for all VAT-registered businesses, regardless of their turnover. Making Tax Digital for Income Tax and Self Assessment is only a requirement for businesses with annual turnover above £100,000. However, it is expected that MTD for ITSA will be extended to all businesses.
There are two main types of MTD-compliant software
There are two main ways to submit VAT returns under Making Tax Digital
The penalties for non-compliance with Making Tax Digital can be significant. The penalties for late or inaccurate returns can be up to £1,000 per month. The penalties for not keeping digital records can be up to £500 per month.
Making Tax Digital is a significant change for businesses in the UK. However, it also offers a number of potential benefits. By keeping digital records and submitting returns electronically, businesses can help to reduce the number of errors in their tax returns and make it easier for HMRC to identify and investigate tax evasion.
