Everything You Need to Know About Making Tax Digital (MTD)
Introduced in April 2019, Make Tax Digital or MTD is an initiative by the UK government to make the UK’s tax system one of the most advanced tax administrations in the world. Furthermore, it is designed to help individuals and businesses pay the right tax. In this post, we will give you a quick overview of MTD and how you can register for the same. So let’s get started.
What is Making Tax Digital?
As mentioned above, it’s the government plan that has changed the way businesses in the United Kingdom file for their tax returns. HMRC has brought the entire tax system online to minimise the errors and false reporting.
Who Does Making Tax Digital apply to?
The first phase of MTD was started in 2019. It was all about taking VAT returns entirely online. The 2nd phase of MTD is delayed until 2022. At the moment, it applies to LLPs private limited firms and Sole trader partnerships.
If you have a taxable turnover above the VAT £85k threshold, you will file your VAT returns quarterly. With Making Tax Digital for VAT in place, you will need to invest in software to complete your records digitally.
Does MTD apply to People Using Flat Rate Scheme for VAT?
When you pay a fixed annual % rate of VAT to HMRC based on your turnover is called the flat rate scheme. If you’re operating the flat rate scheme, you do not need to keep digital records of your purchases.
Is MTD for VAT Obligatory?
MTD for VAT returns is obligatory for VAT registered businesses. However, it has extended until April 2022. Making Tax Digital for self-employed and income tax employees needs to be mandated from April 2023.
Is There Any MTD Exemption?
A large number of small businesses had concern for managing MTD. HMRC responded to this and exempted various groups from Making Tax Digital.
MTD would not apply to those who are not able to use digital software for the following reasons:
- The remoteness of the location
Besides this, if your gross annual turnover is less than £10,000, you might also be exempt from MTD.
How can I Keep Digital Records for Making Tax Digital?
There are plenty of software solutions available in the market that you can implement to keep digital records for Making tax digital. However, the most popular HMRC-compatible software is Xero. This SasS software lets you manage your invoices, expenses and cash flow on real-time. It features automatic credit control and lets you send an invoice via email. Additionally, it supports various add on features to run your businesses efficiently. If you’re struggling to implement or use Xero, you can get in touch with ACE; we are Xero certified partners.
Will MTD Actually Happen?
A lot of businesses are still in a confusion that if MTD will happen. Well, it’s already happening, and businesses are adopting it gradually. The next step of MTD would be put in place in the next 12 to 24 months.