14 January 2021
Ready or not, Making Tax Digital is here. MTD is HMRC’s approach to making the preparation and filing of taxes quicker and easier. For a number of businesses, this new way of keeping records and submitting VAT returns began in April 2019, while many businesses are yet to enrol on the system.
Regardless of whether your business has already migrated to Making Tax Digital, new initiatives can be daunting, especially when they are focused on the financial aspects of your business – and come with penalties for non-compliance.
Although the MTD “soft landing period” was extended, and will now end from VAT periods starting on or after 1 April 2021 due to Coronavirus, we recommend that businesses begin familiarising themselves with the new processes. To help, we answer 10 of the most frequently asked questions to help you make sense of digital tax.
What is Making Tax Digital?
Making Tax Digital (MTD) is a new initiative set by HMRC where eligible businesses will complete their tax returns using approved software and keep their records digitally. Originally announced in 2015, Making Tax Digital for VAT was launched in April 2019, compulsory for VAT-registered businesses with a taxable turnover of over £85,000.
Is Making Tax Digital compulsory?
Eventually, Making Tax Digital will be mandatory for all businesses and landlords. The start date for Making Tax Digital is staggered depending on circumstances. Eligible businesses will be notified of their start date, and any delays, by HMRC. For example, some businesses due to enrol by April 2019 were deferred until October 2019.
However, plans to extend Making Tax Digital were announced in July 2020. From April 2022, the plan is to introduce Making Tax Digital to all VAT-registered businesses, which will include those under the current VAT threshold of £85,000. Then, from April 2023, much smaller businesses and landlords who may only have one or two properties will be included, as MTD will also apply to taxpayers who file income tax Self Assessment tax returns for business or property income over £10,000 annually.
How do I register for Making Tax Digital?
If you are a business, you can sign up to Making Tax Digital with your existing government gateway ID, or you can set up a new one if you don’t have an ID.
For businesses, the steps are as follows:
- Turn on the MTD part of the MTD compatible software
- Then sign up for MTD to submit your VAT return
In the second step, you will need to answer the following:
- Do you have accounting software for managing your VAT records?
- Is your software ready to submit your MTD for VAT Returns directly to HMRC?
After this, you will need to:
- Sign into your HMRC account
- Make sure you have your VAT number to hand and the date you became VAT registered
- Provide the post code of your principal place of business
- Specify the type of business you are registered as
- Supply your Company Number if you are a Limited Company (depending on the response to the previous question)
- Give your Unique Taxpayer Reference
- Agree to receive emails instead of letters from HMRC about VAT
Why is HMRC making tax digital?
According to HMRC, Making Tax Digital is designed to “make it easier for individuals and businesses to get their tax right and keep on top of their affairs.” Going paperless is also a more sustainable and streamline solution to filing tax returns, with aims to be a more transparent and accurate way of dealing with accounts.
Is MTD just for VAT?
Currently, Making Tax Digital is only for VAT, but HMRC will ultimately launch Making Tax Digital for Income Tax and Corporation Tax, under the latest plans to extend the programme.
Can I be exempt from Making Tax Digital?
There are some exemptions to Making Tax Digital. On the launch of Making Tax Digital, these exemptions were announced “on the basis of digital exclusion”, with factors including:
- Disability making using a computer difficult
- Problems with access to broadband in rural areas
- Religious grounds
Plus, any business that is already exempt from online filing for VAT will remain so under MTD without having to reapply. There are more details on exemptions here.
Can I register for MTD for VAT if my turnover is below the threshold?
Businesses with a taxable turnover below the VAT threshold can choose to sign up for MTD for VAT voluntarily, which HMRC are encouraging where possible, to help businesses familiarise themselves with the system.
What are the filing deadlines for Making Tax Digital?
Although the VAT returns system is undergoing modernisation, the frequency or deadlines for payments have not changed, whether for monthly, quarterly or annual schemes. For businesses that pay VAT quarterly, your VAT return deadline remains at 1 month and 7 days after the end of your VAT period.
What happens if I do not register for MTD for VAT?
There will be penalties issued for businesses that don’t adhere to MTD regulations as required. The penalty is worked out on a points-based system, where the business or individual in breach of the rules will receive one penalty point every time they fail to digitally submit accounts on time.
The points threshold differs depending on how frequently the business or individual files their taxes, as follows:
- 2-point threshold for annual submissions
- 4-point threshold for quarterly submissions
- 5-point threshold for monthly submissions
However, HMRC understand that Making Tax Digital will take time for businesses to adjust, so they are taking “a light touch approach to penalties by not issuing filing or record keeping penalties where businesses are doing their best to comply with MTD” – which they are referring to as a “soft landing period”. The “soft landing period” has been extended due to the impact of Coronavirus, as it was originally due to end on 31 March 2020, and will now only end from VAT periods starting on or after 1 April 2021.
How can accountants help with Making Tax Digital?
From helping you choose the right cloud accounting software for the job to answering any of your tax-related questions, or helping you prepare your tax returns, accountants are best placed to help you and your business succeed with Making Tax Digital.
Here at TBL Accountants, our team of experts are trained to ensure your accounts are fully compliant and we are committed to helping local businesses migrate to MTD as easily as possible.
If you are unsure of when your business should be submitting VAT returns, or whether you should have already registered for MTD altogether, we can help you. Get in touch with us and our team will provide the support you need to get started with Making Tax Digital. You can call our Southend office on 01702 466 886 or call our Billericay office on 01277 624 561.