MTD rules to be extended
Sep 10, 2020
The government has recently published an overview of its Making Tax Digital (MTD) scheme, outlining plans to extend the MTD rules for both VAT and Income Tax, with the aim of making it easier for businesses and individuals to pay tax and reduce avoidable errors and fraud.
MTD for VAT
Since 2019, the vast majority of VAT-registered businesses with a taxable turnover above the VAT threshold (£85,000) have been required to keep digital VAT records and send VAT returns using MTD-compatible software.
The big news is that from April 2022 these requirements will apply to all VAT-registered businesses. So even those with a VAT turnover below £85,000 which have so far been exempt, will be required to follow the MTD rules by keeping digital records and using software to submit all their VAT returns.
MTD for Income Tax
It has also been announced that MTD for Income Tax Self-Assessment (ITSA), which was originally intended to start in 2018, will finally be introduced from April 2023. This means that taxpayers who file self-assessment tax returns for a business or property which has an annual turnover exceeding £10,000 per year, will need to start quarterly reporting through MTD software and keep digital records. It is estimated that this regulation will draw approximately four million self employed businesses and unincorporated landlords into MTD.
To date individual landlords haven’t been required to join the MTD regime, unless they are voluntarily VAT registered. This is because letting residential property is exempt from VAT, unless it is holiday accommodation. With the new MTD rules for income tax coming in from 2023, landlords will also be affected and will be obliged to join the scheme.
The Government has announced its roll-out of MTD rules well in advance of implementation, to provide businesses and landlords plenty of time to plan. Most businesses will have two years to prepare for and voluntarily test the service, prior to its introduction. April 2022 might sound a long way off, but it’s worth taking action now so that you are well prepared for the changes. Please talk to us – if you’re not already using digital cloud-based software you’ll be amazed how simple it is, and how much it will improve your business and ease your transition to MTD.