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Making Tax Digital update

We’ve covered the Making Tax Digital scheme before on the GBAC blog, but are you staying on top of the latest MTD updates that could affect your business?

Tax automation using digital accounting systems and cloud accounting software is revolutionising the way businesses are run in the UK, so you don’t want to be left behind.

While VAT-registered businesses have been keeping records and filing tax returns digitally since 2019, this became a requirement for all VAT returns in April 2022.

Now, a few months on, all liable businesses should be running MTD-compliant software and following the new rules – with the risk of financial penalties if they don’t.

What about other types of tax, though? Do self-employed people and landlords need to worry about MTD yet when it comes to filing self-assessment income tax returns?

Read on for the latest information about Making Tax Digital in 2022.

How to sign up for Making Tax Digital

Businesses liable for VAT should have already signed up for MTD, or had an agent register them on their behalf. If this applies to you, then you should be keeping digital records after choosing MTD-compliant accounting software and registering through your Government Gateway account.

Your digital records should cover the start of your usual VAT period, from 1st April 2022 onwards. You can still keep paper copies if you choose, but you must also make digital copies. If you record your VAT information in a spreadsheet, you’ll need bridging software to submit it through MTD.

If you aren’t sure whether you’re complying with current MTD rules, it’s worth getting financial advice. You may want to hire a tax agent, who can register for MTD up to 12 months in advance.

Which Making Tax Digital software to use

Even if you decide to use spreadsheets to record your financial information, you’ll still need bridging software to transfer the data to MTD – and you’ll also be losing out on the benefits of a full digital accounting software package. Bridging software is great as a temporary first step, but in the long run, choosing a suitable accounts software package will be much more helpful for business growth.

So, how can you select the right software for your business? MTD-compliant software
must be:

  • Automatically calculate tax (including payroll and VAT)
  • Pull data directly from transactional systems (e.g. bank accounts)
  • Update financial information daily for up-to-the-minute tracking
  • Allow digital uploads of paper receipts (e.g. smartphone photos)
  • Maintain records with mutual communication with HMRC
  • Prepare and submit quarterly and end-of-period tax statements
  • Finalise annual income and send end-of-year tax declarations

The government website has a list of HMRC-approved MTD software, including already well-known programmes like Xero, Sage, and QuickBooks. We’re very familiar with these systems ourselves here at GBAC, so our financial advisers can help you to find the best fit for your unique business needs.

Eventually, all non-PAYE taxpayers will have to sign up and file their taxes completely digitally. It’s better to get ahead now and set up a seamless digital reporting system that will make things run more smoothly. You can always test out free trials before committing to purchasing a full package.

When to switch to filing taxes digitally

As explained above, any business charging VAT on their products and services should have made efforts to implement appropriate software and register for MTD. You can only put this off a while longer if your current accounting period began before 1st April 2022 – once this ends, you must have an MTD-compliant digital accounting system in place for the start of the next accounting period.

Aside from VAT returns, the delayed schedule for digital Income Tax returns is set for 6th April 2024 rather than the initially planned date of 6th April 2023. This means that anyone who submits a self-assessment tax return has an extra year before they have to go fully digital – including landlords.

Sole traders and anyone who earns income of more than £10,000 a year from self-employment will be expected to follow the Making Tax Digital system from the 2024-2025 tax year onwards. This will mean switching from one annual return to quarterly returns and one final declaration at the end of the year. The quarterly submission dates will be the 5th of May, August, November, and February.

When it comes to Corporation Tax, general partnerships have a Making Tax Digital start date of 6th April 2025. This only applies to smaller partnerships with individuals as partners – larger partnerships with 20 people or more have not been given a start date yet, but it’s unlikely to be earlier than 2026.

Even if your business hasn’t been legally mandated to switch to the Making Tax Digital platform yet, why not sign up sooner rather than later? Early voluntary registration allows you to get to grips with the new system in advance, giving you time to work out any issues ahead of the enforced start date.

Is your business prepared for Making Tax Digital?

While digital tax submissions make things more efficient for everyone, there’s still a lot of work involved. If you’re not certain about your tax liabilities or MTD compliance, or how to get started with Making Tax Digital in the first place, you can always ask the experts – the team at GBAC, accountants in Barnsley.

Give us a call on 01226 298 298 or email your enquiries to info@gbac.co.uk
for Making Tax Digital advice. We can help you with a range of related problems, from upgrading your software and assisting with training your team to handling all of your tax returns entirely on your behalf.

With financial penalties for non-electronic submissions in the near future, you should definitely prepare your business for the Making Tax Digital transition as soon as possible, if you haven’t yet.