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MTD | Making Tax Digital

What is MTD | making tax digital?

Making Tax Digital (known as MTD) is the biggest shake up of the way everyone (including businesses) will need to start reporting to HMRC.

MTD is being introduced over the coming years but kicked off in April 2019 with MTD for VAT - which is now live.

HMRC's plan is to follow this with MTD for Income tax and then MTD for Corporation Tax over the next couple of years.

In essence, MTD means recording all your activity electronically, then reporting it to HMRC more regularly and electronically. The days of keeping paper and completing HMRC forms manually are soon to disappear.

Salonfrog is MTD ready

We have been following the MTD journey since the start and our Clients are all MTD compliant. We do it all for them!

MTD for VAT

Since 1 April 2019, the vast majority of  VAT-registered businesses with a taxable turnover above the VAT threshold (£85,000) have been required to keep their VAT business records digitally and submit their VAT returns using MTD-compatible software.

We have ensured all our Clients are compatible and we submit their VAT returns for them using HMRC approved software.

Under MTD for VAT, you complete the same number of VAT returns as currently (4 for quarterly, 12 for monthly, 1 for Annual Accounting) and your due dates remain the same.

LATEST:

Under the MTD for VAT rules, for periods starting on or after 1 April 2020 (or 1 October 2020 for deferred businesses) digital links must be in place for any transfer or exchange of data between software programs, products or applications used.

In practice, this means no more manual rekeying, or copy/pasting from your salon or barbershop POS system into and out of excel upload templates (which most businesses and their accountants rely on at the moment)!

MTD for Income Tax

It is proposed that the Self Assessment tax return will be replaced by five new reporting ones made during and after the tax year.

This measure is not anticipated to commence until April 2021, although no start date has been given.

Your first tax return under such a system is due in the fourth month of your accounting period, you will then have to file with HMRC every three months.

If you are not already using software for your record-keeping/accounting, you will need to learn how to use a spreadsheet or some type of accounting software or App.

You will need a reliable internet connection and a facility to store your electronic data.

Five tax returns per year

The first tax year likely to be affected is 2021/22 (although no start date has been announced). This runs from 6 April 2021 to 5 April 2022.

Assuming you choose an accounting period that is co-terminus with the tax year your:

  1. First report will be due in June/July 2021.
  2. The second report will be due in Sept/Oct 2021.
  3. The third report will be due in Dec 2019/Jan 2022.
  4. Your Self Assessment tax return for 2020/21 will also be due by 31 January 2022.
  5. The fourth report will be due in March/April 2022
  6. Fifth and final year-end report deadline, probably January 2023 in the first year.

You will be able to change your accounting period and quarters. The end-of-year report then becomes due at the earlier of 10 months following the year end and 31 January.

If you currently use the cash basis (or would like to)

  • The entry threshold for the cash basis increases to £150,000 and the exit threshold to £300,000.
  • The current general disallowance of capital expenditure will be replaced by a more specific disallowance for certain assets (including those not used up within 20 years).

HMRC are still looking at changes to basis periods and simplified reporting with fewer adjustments. More detail is expected later this year.

Tax payments

  • You will be allowed to voluntarily pay your taxes as you go: the detail is still being decided.
  • Eventually, it is likely that you will be required to make four payments per year on account of tax.

Penalties

  • There will be no late filing penalties for at least a year while the new system beds in. After that, you will suffer penalties if you file your returns late.
  • Penalties already apply for errors in returns or documents.
  • Late payment interest already applies.

MTD for Corporation Tax

Similar to MTD for Income Tax, Ltd Companies will be required to ensure they are also MTD compliant.

Keep abreast!

We continue to follow the MTD story and keep our Clients up to date on it!

If you want to read HMRC's full VAT notice on the subject, head here:

https://www.gov.uk/government/publications/vat-notice-70022-making-tax-digital-for-vat/vat-notice-70022-making-tax-digital-for-vat