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Making Tax Digital Rollout

Making Tax Digital (MTD) is the governments plan for ensuring that businesses record their transactions digitally and submit quarterly information to HMRC. The long term goal of the government is to  end the process of the submission of annual tax returns.

The first round of MTD saw VAT registered businesses with an annual  turnover of £85,000 or more being brought into the scheme. This is known as MTD for VAT.  All such companies are required to maintain detailed digital accounting records and to submit VAT returns direct to HMRC from their accounting records.

There are broadly two methods to adopt in order to be compliant. Firstly businesses can maintain their records on accounting software, such as Xero, Sage, Quickbooks and Freeagent. The alternative approach is to maintain records on excel and use ‘bridging’ software to allow the returns to be submitted electronically to HMRC.

The two biggest risks of  using excel to record transactions are:

  • The excel files could be set up incorrectly and hence not report the correct figures.
  • Although recording transactions digitally, the excel files may not be set up in a way which is not compliant with MTD.

For these reasons, we recommend that businesses should use MTD compliant accounting software.

From April 2022 all other VAT registered businesses will fall under the MTD  for VAT regime.

From April 2023 MTD for Income Tax is scheduled to be introduced. This requires all self employed people to record their business transactions digitally and to submit quarterly returns of income and expenses to HMRC. The returns need to be submitted within 1 month of the end  of each quarter. Individuals who own rental property with incomes in excess of £10,000 are also included in MTD for income tax.

From April 2026 MTD for Corporation Tax is being introduced. This will require all companies falling within the scope of corporation tax to submit information quarterly to HMRC of income and expenses. Again the returns will need tO be submitted within 1 month of the end of each quarter.

Further details can be found from HMRC on the following link:

https://www.gov.uk/guidance/sign-up-your-business-for-making-tax-digital-for-income-tax#:~:text=Contents&text=Making%20Tax%20Digital%20for%20Income%20Tax%20is%20a%20new%20way,a%20Self%20Assessment%20tax%20return.

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