9 November, 2022
Hoxton Mix has partnered with Ember to help you manage your accounting a tax. Read on for the lowdown on everything you need to know about Making Tax Digital and how to prepare your business for the changes ahead.
In an effort to make tax easier for business owners, HM Revenue and Customs (HMRC) is in the process of unfurling its flagship initiative Making Tax Digital (MTD).
Starting with Making Tax Digital for VAT in 2019, HMRC has been fine-tuning the scheme’s rules and requirements and has plans to expand into Income Tax and Corporation Tax over the next few years.
Making Tax Digital is a government initiative set to change the way tax is recorded, filed and stored through digitalising tax data and tax submissions.
To meet requirements, business owners and landlords will need to store relevant digital records and file tax returns electronically using MTD-compatible software.
As a result, taxpayers are expected to make fewer errors in their submissions, reducing the risk of incurring fines while increasing the likelihood that HMRC gets the tax they’re owed on time.
To give business owners enough time to get their businesses ready for MTD, HMRC is rolling out Making Tax Digital in a series of stages.
In 2019, the first phase of MTD for VAT came into effect, requiring all VAT-registered business owners with a taxable turnover about £85,000 to store digital records and to submit their VAT Returns using MTD-compatible software (such as Ember).
Completing the rollout for MTD for VAT in 2022, where it became mandatory for all VAT- registered business owners irrespective of turnover to meet MTD requirements, HMRC now turns its attention the next phases of MTD.
We’ve compiled all MTD legislation and the dates they come into effect in the table below:
While the eligibility criteria for each type of tax varies, there are two requirements that must be met under MTD: storing digital records and filing digital tax returns using MTD-compatible software.
In the case of MTD for VAT, you’ll need to ensure you have MTD-compatible software in place before registering your business. This can either be bridging software that connects non-compatible software, such as spreadsheets, to HMRC’s systems using digital links, or a compatible digital software package that allows you to store digital tax records and submit VAT returns electronically.
With Ember, not only can you store digital records and file tax returns directly to HMRC, but you’ll also have a qualified accountant on hand to draft your return for you, should you need extra help.
As mentioned above, MTD for VAT is now officially mandatory for all VAT-registered business owners.
While this has been applicable to those earning above the £85,000 VAT registration threshold since 2019, the latest extension now means those earning below this amount but chose to register voluntarily must now meet the requirements for Making Tax Digital.
If you’re planning on registering voluntarily or expect your taxable turnover to exceed the registration threshold soon, you’ll need to register for MTD for VAT at the end of your current VAT period. Registering in the middle of your VAT period could leave you unable to finish processing your VAT return on your online account and, as a result, you could be fined.
Otherwise known as MTD for ITSA, Making Tax Digital for Income Tax is the next phase of MTD to roll out, with sole traders and landlords required to comply by April 2024. Partnerships aren’t expected to register until April 2025, with other business structures due to be announced at a later date.
To be eligible for the scheme, you’ll need to meet the following criteria: Are a UK resident
Are you a sole trader with income from self-employment, a landlord renting out UK property, or both
Have a qualifying income above £10,000
In the eyes of HMRC, your qualifying income is the total amount you make in a tax year from self-employment and property income before expenses are deducted.
If you tick the above boxes, when MTD for ITSA comes into effect you’ll need to use MTD-compatible software to:
Keep digital records of your business income and expenses
Send quarterly updates to HMRC detailing your business income and expenses
File an End of Period Statement at the end of your fourth quarter to finalise each business income source
Submit a Final Declaration to include other sources of taxable income, such as savings and investment income
Both the deadline for submitting your EOPS, Final Declaration and paying the Income Tax bill generated is 31st January after the end of the tax year.
At the time of writing, all we know is that MTD for Corporation Tax isn’t due to roll out until April 2026. In the meantime, keep an eye on Ember — they’ll be sure to keep you posted with any updates from HMRC.
Hoxton Mix members get 25% off their first 3 months of their chosen Ember subscription package