Making Tax Digital (MTD) – the UK’s flagship tax scheme – is likely to have a significant impact on all UK businesses. Making Tax Digital for VAT is now live, and more developments are being unrolled in 2021. Check out our guide to find out more about the implications of MTD, including how to sign up for Making Tax Digital. First, what is MTD?
What is Making Tax Digital?
Making Tax Digital is a UK government initiative that aims to revolutionise the UK tax system and end self-assessment. Its main objective is to create a more efficient, easier tax administration system via completely digitised tax returns. Put simply, you’ll be able to keep track of the amount of tax you owe – as well as the amount that you’re due to receive back – throughout the financial year.
What is the purpose of MTD?
Despite the best intentions from individuals and businesses, people make errors when doing their taxes. According to the latest tax gap figures (difference between the amount of tax that should be paid to HMRC and the amount that’s actually paid), errors cost the government £3.4bn per year. Digital records provide greater accuracy and can reduce these types of avoidable mistakes, saving HMRC money.
It’s also worth remembering that there are benefits for taxpayers and businesses too. With a digital tax account provided through MTD, it will be significantly easier to understand how much tax you owe. Furthermore, digital bookkeeping will reduce the reliance on paper-based bookkeeping and make it simpler to check whether the information held by HMRC about you is correct.
Does my business need to be MTD-compliant?
Before you start the registration process for MTD, it’s important to understand whether it’s something your business actually needs to be concerned with. Simply put, if you’re a VAT-registered business with over £85,000 in taxable turnover, you need to be following the rules for Making Tax Digital. However, there are a couple of exceptions. For instance, if your business uses the VAT GIANT service or you receive an exemption, MTD doesn’t apply.
Exemptions are granted when it’s not practical for you to use computers or the internet. For example, if you object to using computers on religious grounds, you may not need to follow the rules for Making Tax Digital for VAT. Of course, there are other reasons why MTD may not apply to you. If you’re already exempt from filing VAT returns online, your business is subject to an insolvency procedure, or you haven’t had a taxable turnover of £85,000+ since April 2019, you won’t need to worry about MTD.
When does my business need to register for MTD?
Once you’ve determined that Making Tax Digital applies to your business, you should find out when you need to sign up for MTD and start submitting your returns. If HMRC has sent you a letter stating that you’re in the deferral group, you should have begun keeping digital records from your business’s first VAT return period that started on or after 1 October 2019. Otherwise, keep digital records from the first VAT return period beginning on or after 1 April 2019.
So, when do you need to actually register for Making Tax Digital? Simple, just sign up at least 72 hours before your first return is due after either 1 April 2019 or 1 October 2019 (for those in the deferral group). If you‘re paying by Direct Debit, ensure that you sign up at least seven working days before or five working days after the return is due. Then, you should use your accounting software to submit your first return after either 1 April 2019 or 1 October 2019 (for the deferral group).
How do you register for Making Tax Digital?
So, how do you sign up for MTD? It’s a relatively simple process, although you’ll need to ensure that you have MTD-compliant software before you sign up. You can search for software that works with Making Tax Digital using this HMRC service. Before you get started, you’ll need a couple of key pieces of information. In addition to a business email address, you’ll need to know the following (depending on your company’s business structure):
Sole traders – National Insurance Number
Limited companies, registered societies – Company registration number and Unique Taxpayer Reference (UTR) for Corporation Tax
Limited partnerships – Partnership’s company registration number, postcode where you’re registerede for self-assessment, and UTR
General partnerships – Partnership’s UTR and postcode where you’re registered for self-assessment
Once you’ve got that information, you just need to sign up for Making Tax Digital using HMRC’s online tool. Remember, before you’re able to send Making Tax Digital for VAT returns, you’ll need to authorise your software. If you’re not sure how to do this, get in touch with your software supplier and they should be able to point you in the right direction.
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