Making tax digital – a guide

Making Tax Digital (MTD) is a key part of the government’s plans to make it easier for individuals and businesses to ensure that their tax is correct and to keep on top of their affairs.

Until now, MTD VAT was only applicable for businesses who had turnover above the VAT registration threshold, but from 1st April 2022 this is now a requirement for all VAT registered businesses.

Going forward, from April 2024 all businesses will need to be MTD compliant, whether they are VAT registered or not, as part of the overall digitalisation of the tax system.

If your business is VAT registered and is not currently enrolled for MTD VAT, you will need to sign up to the MTD VAT service.

You will need your Government Gateway account to register for MTD VAT. If you do not already have a Government Gateway account set up, you will need to register for a Gateway via the gov.uk website.

Once you have enrolled for MTD VAT there are two options available to submit your VAT returns. The choice you make will be based on how your records are maintained.

If you currently use or intend to use an accounting software, then the switch over to MTD VAT should be straightforward as most software packages are already set up for this process. There is quite an extensive list of MTD VAT approved software currently available.

However, if you currently use, and intend to carry on using, spreadsheets or manual records then you will require a MTD VAT approved bridging software. This software enables a spreadsheet document to be used to calculate the VAT and upload to the Gateway via the bridging software to comply with MTD VAT.

There are certain exemptions available if using spreadsheets or bookkeeping software are not viable options for you. HM Revenue and Customs may grant exemption to MTD VAT if:

  • It’s not reasonably practicable for you to use digital tools to keep your business records or submit quarterly returns due to age, disability, remoteness of location or any other reason (often referred to as ‘digital exclusion’).
  • You are subject to an insolvency procedure.
  • The business is run entirely by practising members of a religious society or order whose beliefs are incompatible with using electronic communications or keeping electronic records.

To apply for an exemption, you must contact HM Revenue and Customs in writing or by telephone. They should then confirm their decision to you in writing.

If exemption is granted this will allow the submission of returns to continue as they have been.

Making Tax Digital for Income Tax Self-Assessment

It had originally been the intention of the government to extend MTD to income tax self-assessment (MTD ITSA) from April 2023. However, this has now been delayed until 6 April 2024 following the impacts of the Covid 19 pandemic. Therefore, the tax year ending 5 April 2024 will be the last year that business profits and property income will be reported on an annual basis for taxpayers who meet the criteria as set out below. Please note that general partnerships will not be required to join MTD ITSA until 6 April 2025.

The requirement to operate under MTD ITSA will apply to any taxpayer with a self-employed business and/or property income over £10,000. This threshold relates to the gross income you receive before deduction of any expenses, allowances, or reliefs. Therefore, a sole property let for more than £834 per month or multiple properties with total rental receipts in excess of £834 per month would be caught under MTD ITSA, as well as any trades with turnover in excess of £10,000 per annum.

The £10,000 is a threshold for all relevant income. Therefore, if you have a small trade with turnover under £10,000 and a small let property with rents under £10,000 per annum, you will still need to report under MTD ITSA if the combined total of both sources exceeds £10,000.

Please note that MTD ITSA covers rent from all property businesses so residential and commercial rental receipts will need to be considered.

Under these changes, those mandated to use MTD ITSA will need to keep records of their income and expenditure digitally and submit a quarterly summary of their income and expenses, plus an end of year report to HM Revenue & Customs, using MTD ITSA compatible software (or applications).

In line with the exemptions for MTD VAT, individuals should not have to follow the MTD ITSA rules if any of the same exemptions apply as listed above. We understand that where a business has already qualified for an exemption from MTD VAT, they will also be exempt from MTD ITSA.

Trustees, executors, and administrators are also exempt from MTD ITSA.

Although the frequency of reporting is to change, the timing of tax payments will not and the current system of payments on account and balancing payment by 31 January after the tax year is expected to remain in place for the foreseeable future.

Bush & Co has successfully managed the transition to MTD for our VAT registered clients, which came into effect in April 2019. We have continued to invest in our software and staff training and are perfectly positioned to help you manage this change when the time comes.

If you have any queries relating to MTD please contact our offices at mail@bushaccountants.co.uk and it will be dealt with by a member of our MTD team.

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