Making Tax Digital
Making Tax Digital (MTD) is an initiative by the UK government to encourage taxpayers to transition from keeping paper to digital records. The scheme launched in April 2019 – and it is reported to have generated an extra £220 million in tax revenue in the first year.
If you’re a sole trader or landlord making more than £10,000 in rent, you won’t be affected until 2023.
Am I affected?
Currently, the changes affect VAT-registered businesses with an annual turnover of more than £85,000. But the plan is to extend this to all VAT-registered businesses. It will also be implemented for Income Tax in 2023 (for the self-employed) and also Corporation Tax.
Here are some deadlines to keep in mind:
- April 2019 – compulsory for VAT-registered businesses with turnover >£85,000
- October 2019 – compulsory for more complex businesses who deferred
- April 2022 – compulsory for limited companies below the VAT threshold (£85,000)
- April 2023 – compulsory for both sole trader and limited company businesses
What does Making Tax Digital mean for me?
The idea behind Making Tax Digital was to reduce the “errors and mistakes” that are common to businesses when it comes to doing their taxes. Being able to record taxes digitally will not only be a more sustainable process but it will make it faster, easier and more efficient.
Using accounting software and quarterly updates will (hopefully) cut down errors that often occur when businesses make manual calculations or transcribe their records by hand from one format to another. Overall, the plan is to help businesses to feel confident that they’ve done their taxes correctly the first time round. It will cut down overheads for both HMRC and the businesses themselves.
What will be different for sole traders?
- Send Income Tax digitally rather than via Self Assessment
- You can sign up now, even if you’re doing a Self Assessment
- You need compatible software to keep records
- You’ll send HMRC an overview of your income and expenses every 3 months
- You’ll see estimates of what you owe each quarter
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