Making Tax Digital – What, When and Who?

Making Tax Digital is something that business will be hearing a lot about over coming months.

Our newsletter this month focused on MTD.  We’ve shared below what we had to say.  Our newsletter comes out roughly once a month, and is free – so if you would like to keep up to date with MTD and other topical business and tax issues, sign up here

 

Making Tax Digital – What, When and Who?

Making Tax Digital (MTD) is HMRCs project to digitise tax accounting and reporting.

Here are key deadlines you need to know about:

• Making Tax Digital for VAT – from April 2019
• Making Tax Digital for Income Tax – from April 2023
• Making Tax Digital for Corporation Tax – “not before 2026”

MTD for VAT is already in place for businesses with turnover over the VAT threshold, and VAT returns should be being submitted digitally.  However there are two further changes coming:

• First, from April 2022 all VAT registered businesses will need to comply, not just those over the VAT registration threshold – this means voluntarily VAT registered businesses will now be in the scheme
• Second, from April 2021 the soft landing on Digital Links ends.  If you use software like FreeAgent, Xero, Sage this won’t be issue, but if you have a combination of systems or use MTD enabled spreadsheets it will be an issue.

Read our guide to MTD for VAT

Making Tax Digital for Income Tax – The New Era of Quarterly Tax Returns

Making Tax Digital for Income Tax (MTDfIT) arrives April 2023.

MTDfIT will apply to the following:

1. Partnerships with a turnover of over £10,000
2. Sole traders or Landlords with business turnover or rents over £10,000 in any combination

Note that this second limb is any combination – so it could be Business Turnover over £10,000; Rental Income over £10,000 or a combination of the two, eg Business Turnover £8,000 and Rents £4,000.

If you are a Company Director or Employed, then MTDfIT applies if you have additional income as a Sole Trader or Landlord above the £10,000 threshold,  although employment income and dividends will only be reported on the end of year returns, not quarterly.

If MTDfIT applies to you, then your obligations are to:

• Keep Digital Records – using HMRC approved software
• Submit Quarterly Interim Returns to HMRC digitally, one month after quarter end
• Submit final returns to HMRC by 31 January after the end of the tax year

Read our guide to MTD for Income Tax

How will our services change?  We are anticipating that a number of our clients will need support with the MTD for Income Tax process, both between now and April 2023, and going forward afterwards, and unsurprisingly we are planning for this.

We plan to offer a tiered service:

1. A Year End only service at similar fee levels to existing. We would submit the annual year end reconciling return – the simpler quarterly returns you prepare and submit yourself.
2. A Quarterly Check service – where we check and submit the quarterly returns as well as doing the year end reconciling return – expect additional fees for this to be roughly £50 to £100/quarter plus vat.
3. A “Brown Envelope” service where we can take over all data entry and submission – this will be bespoke pricing, but as a guide would typically range between £50 and £250/m + vat.

For 1 and 2 you will need to budget for software / apps on top of this; with 3 we can incorporate the software into our agreement with you. We are “open platform” as a firm, so will work, where possible, with your choice of software, but in the absence of any other preference guide clients toward FreeAgent.

For clients using our existing Solo Yoga Teacher package at £200+vat PA, our plans are to offer a package as follows:

• Year end work and ad hoc advice as existing service
• Check and submit quarterly returns
• FreeAgent software

at £500+vat PA, paid monthly in instalments of £50/m.  You would be responsible for the day to day data entry, we will check, finalise and submit.