Making Tax Digital – a contractor’s look at when, where and how you’ll be affected

What is Making Tax Digital (MTD)?

MTD is the government’s plan to transform the tax system and move everything online. The Treasury minister Jesse Norman, has hailed the expansion of MTD the ‘next step to creating a modernised digital tax system fit for the 21^st century’. He said that MTD should make ‘keeping on top of tax affairs easier, boost productivity and reduce error’.

Originally introduced back on April 1^st 2019, all VAT registered businesses with a taxable turnover that exceeded the £85,000 VAT threshold, were now required to use compatible digital software to store and submit their VAT information to HMRC. From April 1^st 2022, all businesses that are VAT registered, must follow the new MTD rules, regardless of whether their taxable turnover is above the £85,000 threshold.

The government is also extending MTD to include Self Assessment Tax Return information (by April 2024) and Corporation Tax (date to be confirmed).

What records will you be required to keep digitally?

• Your business name
• Business’ address
• VAT registration number
• Your VAT accounting schemes (if you currently use any)

When making a supply to customers (your output VAT):

• The supply date
• The supply value
• The VAT rate charged

When receiving a supply (input VAT):

• The supply date
• The supply value, including any exempt or zero rated VAT
• The amount of claimable input tax

Your VAT account must include:

• Sales tax output dates
• Output tax due on acquisitions from other EU member states
• The tax payable on behalf of your supplier under a reverse charge procedure
• Any tax reclaimable following a correction or error adjustment
• Any other necessary adjustment required by VAT rules

When do you need to start keeping digital records?

If your business is VAT registered with a taxable turnover above the VAT threshold of £85,000 or more, you will have already been required to do so since April 1^st 2019. From April 1^st 2022, every VAT registered business will be required to keep digital records, regardless of their turnover.

What is the soft landing period?

For the VAT periods beginning in the 2019/20 tax year, all businesses won’t need digital links for all software, and will be able to cut and paste or manually transfer records instead.

Be aware that this doesn’t include the actual VAT return submission, which must be shared with HMRC using an API.

Will MTD mean an increase in business admin?

For most Limited Company contractors, they have found that using MTD compatible software for VAT has actually saved them time and reduced their admin burden.

Will you be fined if you don’t comply?

If you fail to follow the MTD rules and submit your VAT information to HMRC using compatible software, you will be subject to fines and penalties.

Will MTD be extended to any other taxes?

Yes, the MTD rules will be extended to include the submission of Self Assessment Tax Returns by 2024, and Corporation Tax (date to be confirmed).

When can you apply for MTD?

You’re able to sign up now, using the MTD sign up form via the gov.uk website.

MTD for Income Tax

The implementation for MTD for Income Tax Self Assessment (MTD for ITSA) has been delayed until April 6^th 2024. This applies to an individual, partnership or trust with a total business or income from property that exceeds £10,000 per year.

How SG Accounting can help you to prepare for MTD

The good news for our clients is that we will continue to ensure everyone is compliant, and we’ll take as much of the headache away from you as possible. The process you currently use with your SG accountant won’t change, as our processes are all MTD compatible. If you use FreeAgent they’re also digitally compatible, so there’s no need to source alternative software.

When it comes to changes within tax, we’ve got our finger on the pulse, and are ready to support you and make the transition as smooth and painless as possible. Get in touch with your accountant for more detailed information.