Making Tax Digital (MTD) is a Government initiative that aims to provide the UK with one of the most digitally advanced tax administrations in the world. Under MTD, taxpayers are required to keep electronic records and report to HMRC digitally. MTD is being implemented in stages. However, the timeline has recently been revised, delaying the start date of MTD for Income Tax by one year.
If you are a VAT-registered business with turnover above the VAT registration threshold of £85,000 a year, you will already be within MTD for VAT. If your turnover is below this level, you may have joined voluntarily. However, if you have not done so, you will need comply with MTD for VAT from the start of your first VAT accounting period beginning on or after 1 April 2022. MTD for VAT becomes compulsory for all VAT registered traders from that date.
For example, if you are registered for VAT but your turnover is below the VAT registration threshold of £85,000 and your VAT quarters end on 31 May, 31 August, 31 October and 31 January, you will need to start complying with MTD for VAT from 1 June 2022 – this is the first day of the first VAT quarter which starts on or after 1 April 2022.
As you do not need to be registered for VAT if your turnover is below the VAT registration threshold, if you do not want to comply with MTD for VAT, you have the option of de-registering. However, this will mean that you are unable to reclaim back any VAT suffered on your purchases.
The next phase of the MTD programme is MTD for Income Tax. Initially, this will apply to self-employed businesses and landlords with annual business or property income in excess of £10,000. MTD for Income Tax was due to come into effect from April 2023. However, the start date has now been delayed by one year, and businesses and landlords that fall within its scope will need to comply with the rules from 6 April 2024 onwards.
Under MTD for Income Tax, businesses and landlords will need to keep business records digitally and send quarterly income tax updates, an end of period statement and a final declaration to HMRC using MTD-compatible software. This will replace the need to file a self-assessment tax return.
As part of the preparation for the introduction of MTD for Income Tax, the basis period rules for unincorporated businesses are being reformed. Businesses will be taxed on the profits for the tax year, rather than on the profits for the period ending in the tax year (the current year basis). The tax-year basis will apply from 2024/25, with 2023/24 being a transitional year.
No date has yet been set for the start date of MTD for Corporation Tax. However, the Government have stated that MTD for Corporation Tax will not become mandatory before 2026.
We can help you understand what MTD will mean for you and your business. Please get in touch to discuss what you will need to do to prepare.