As of the 1st of April 2022, the UK government’s Making Tax Digital policy has expanded its scope. All VAT registered businesses are now required to submit their tax returns online, along with maintaining updated digital records at all times.
This is a compliance measure that will eventually be mandatory for businesses of all types and sizes. For this reason, it’s good for business owners to learn as much as possible about making the transition sooner than later.
Why MTD is Being Introduced
Making Tax Digital was first announced in 2019 as a response to a high number of businesses submitting their tax returns incorrectly, late or both.
Digital tax submission is a way to simplify the process, curbing the possibility of avoidance and fraud, while also helping companies to stay on top of their tax obligations at all times.
How to Prepare for Making Tax Digital
If your business exceeds the £85,000 VAT threshold, it’s time to make the transition to a digital tax system. Being included on a list of non-compliant companies isn’t good marketing for anyone, after all.
1. Stay on top of MTD deadlines
It’s important for all business owners to stay on top of deadlines related to MTD at all times. Even if your company isn’t VAT registered at this stage, a spike in turnover could put you there unexpectedly. Prepare for this now, in order to avoid additional stress and unnecessary disruptions down the line.
Come April of 2024, all self-employed businesses — as well as landlords with an annual business or property income of over £10,000 per year — will have to follow MTD guidelines. It’s likely that Making Tax Digital may impact Corporation Tax by as early as April of 2026 too.
2. Create a business-specific plan
Once you’re ready to start the transition, talk to your accountant about putting a plan together that covers all bases. If you don’t work with one, you’ll need to put this together yourself. It should include ways to create formal processes for creating, saving, maintaining and sharing digital records across your operations.
If your business has been handling everything manually up until this point, you’ll need to factor in additional time and resources for digitisation, along with any related training that might be necessary to pull off the new process.
3. Find an MTD-compliant software solution
Not all digital tax software providers are able to link to HMRC’s system. You will need to find one that is compatible first. This is important as HMRC needs to be able to easily pull data from your digital records to assess whether the submission is actually correct.
The software should keep track of expenses, save receipts and provide a detailed summary before the submission is made. Finding a user-friendly platform (like the one from QuickBooks) is an added bonus.
4. Register with HMRC and submit your tax return
After deciding on the software, you’ll need to sign up for MTD via the UK government’s website. When doing so, you’ll need to share specific information about the business first, including your business email address and a Government Gateway user ID and password (which is easy enough to create if you don’t already have one).
Once registration is completed, wait for verification from HMRC first before you submit your tax return, to be sure that it will be able to be processed. The system should confirm receipt, while also making you aware of future submission deadlines too.
MTD has the potential to be a game changer for tax compliance in the UK. Although having to keep digital records all year round might seem like more work, reducing the amount of stress ahead of tax season and decreasing the likelihood of facing penalties is enough of an incentive to make it worth it. All the best with navigating the transition!