Making Tax Digital (MTD): Extended To All VAT Registered Businesses and Income Taxpayers

Making tax digital (MTD) is one of the biggest reforms introduced by UK government to digitalise the tax system of the country. HMRC implemented this from 1^st April 2019, following which more than 1.4 million businesses became a part of this revolution and around 6 million VAT returns have been submitted digitally. Previously, Making tax digital (MTD) only applied to businesses having VAT taxable turnover above the VAT-registration threshold, i.e.£85,000 annually, but as per the recent announcement, it will become mandatory from April 2022 for every business registered for VAT, to maintain VAT records digitally and submit their VAT returns digitally. From April 2023, it will be extended to income tax self-assessment tax return for businesses and landlords with income from properties exceeding turnover of £10,000 annually.

The announcement is part of the 10-year digital strategy released by the government to create a tax system fit for the challenges and opportunities of the 21^st century’ which was published alongside the draft finance bill 2019-2021.

• MTD for VAT registered businesses
• MTD for Income taxpayers
• MTD for Corporation tax
• Conclusion

MTD for VAT registered businesses

As per the current rules, it is compulsory for VAT registered businesses having annual turnover of more than £85,000 to maintain their VAT records digitally and submit their VAT returns directly to HMRC with the use of MTD compatible software or a bridging software. Those small businesses that are having annual turnover of less than £85,000 were exempt from MTD but it was recommended that they should come forward and voluntarily join this scheme to enjoy the benefits of MTD.

As per confirmation from Finance Secretary of the Treasury “Jess Norman” – It is now confirmed that it is mandatory for all the VAT registered businesses to use MTD compliant software for filing of their VAT returns from the period starting from 1^st April 2022. Many of the small VAT registered businesses have already started using a MTD compatible software but still there are many remaining to join this wagon. This is basically an extension to HMRC’s long term tax digitalisation plan, so that businesses and people can file their taxes to HMRC easily without any hassle, reduce human errors and fraudulent activities leading to a boost in national productivity.

Also See: Common misconceptions about Making Tax Digital (MTD)

MTD for Income taxpayers

When MTD was started, the initial plan was to implement this for quarterly reporting of income tax but later the focus was shifted to VAT return filing as it was easier to implement. As per the new announcement, it will be mandatory for self-employed businesses and unincorporated landlords with anannual turnover of more than £10,000 to file their income tax self-assessment tax returns through MTD compatible software and maintain digital records from period starting April 2023. The new measure will be applicable to around 2 million unincorporated businesses and landlords.

MTD for corporation tax

It’s been over 4 years since businesses and advisors have been waiting to see the document comprising the plan for MTD for corporation tax, this time the government has promised that the consultation document will be published in autumn. Nothing has been specified for MTD in case of complex bodies like large partnerships and LLP’s. Now, all eyes are on consultation paper of MTD for corporation tax releasing in autumn.

Also See: VAT Registration – How to Fill VAT1 Form?

Conclusion

MTD is a right step taken by the government to benefit the taxpayers who are still using spread sheets or filing the taxes manually. This step will influence many taxpayers to shift voluntarily towards MTD compliant software, till it becomes mandatory for VAT registered businesses below £85,000 and income tax from April 2022 and April 2023 respectively. After this great initiative, it has become easier for the taxpayers to pay right amount of tax to HMRC and tax avoidance has reduced. It means that small businesses and individuals now need to start planning for reporting of their tax information in real time through MTD compatible software and all previous ways of filing tax returns to HMRC should be avoided.

The world is growing and moving towards digitalisation, then why not ways of tax submission. This announcement also sends a wake-up call to the software providers to get some new products into the market with simplified way of filing tax returns. It’s the time for software providers to pull up their socks and upgrade their software’s to make them more compatible to the new digitalisation system. Businesses that are still not using MTD compatible software having much time for planning, selecting and developing the habit of working on MTD compatible software.

Many other countries have already modernised their digital tax system and minimise the time businesses spend on their tax affairs, for ex – Denmark in 2014. This extension has already proven that in the coming time, we will see many more decisions of the UK government, covering the remaining aspects of the tax system to be digitalised and get more clarity over the future direction of tax affairs to make them fit for 21^st Century.

In case you want more information or advice on MTD for VAT, Income tax and Corporation tax, kindly call us on 03330886686 or you can e-mail us on enquiry@dnsaccountants.co.uk

Also See: Find The Documents To Complete Tax Return

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.