Making Tax Digital for Income Tax
The Government’s long-term tax digitisation plan is designed to boost national productivity, make it easier for businesses and people to pay tax and reduce avoidable errors and fraud. As part of their strategy, MTD will continue and be gradually extended according to a recent announcement.
Broadly, at present businesses above the VAT threshold of £85,000 are covered by MTD, which requires them to keep digital records and provide VAT returns in and through Government-approved software.
From April 2022, the VAT MTD project will be extended to all VAT-registered businesses with turnover below the VAT threshold (£85,000), which presumably means not much change in law but a change in process for those affected businesses.
From April 2023, the MTD project will be massively extended into the world of income tax to taxpayers who file income tax self-assessment tax returns for business or property income over £10,000 annually (presumably this is referring to turnover, not profits).
The Government statement suggests that the changes will make it easier for businesses to keep on top of their tax affairs. However, there was no detail as to precisely what the SA MTD system will require or involve.
The Government have announced this now to provide a long lead-in time to allow businesses, landlords and agents time to plan. It also gives software providers enough notice to bring a range of new products to market, including free software for businesses with the simplest tax affairs.
This is clearly a fundamental statement for many clients and we will keep you updated as matters develop so that you can plan what is required and communicate it to those affected.
Whilst the recent announcement in short on detail, we can only assume the requirements will be broadly similar to what was announced in recent years about MTD for Business until the plans were postponed due to lack of progress, Brexit and now the Coronavirus pandemic.
This will involve business owners submitting tax return information to HMRC on a quarterly basis instead of once a year.
Cloud accounting tools will become a must – the “new norm” – for all small business owners.
We recommend embracing the technology to improve your business first and foremost. Producing reports and returns should be a much simpler task if you have the right team in place to update and maintain your cloud accounting systems.
As always, act sooner to get yourself ready for the changes ahead!