MTD mythbuster: 9 myths about Making Tax Digital dispelled – Sage Recommendation United Kingdom


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MTD mythbuster: 9 myths about Making Tax Digital dispelled – Sage Recommendation United Kingdom

There’s various misinformation about Making Tax Digital (MTD).

Basically, it’s the federal government’s plan to digitalise taxes.

Making Tax Digital for VAT means VAT-registered companies should use software program for his or her VAT accounting and digitally preserve their VAT accounting information.

In April 2024, Making Tax Digital (MTD) is expanded to earnings tax, and can have an effect on thousands and thousands of sole merchants and landlords with incomes above £10,000.

The advantages for companies of MTD are clear: accounting is revolutionised, with a much-clearer view of money stream and tax liabilities.

This empowers enterprise house owners and managers to make higher selections and to focus on progress.

On this article, we checklist 9 incorrect assumptions about MTD. Have a learn and see how a lot —or not…

Right here’s what we cowl:

1. It’s about going 100% digital with all your accounting

2. HMRC wants to see all of your accounting data

3. With Making Tax Digital, you’ll pay more tax

4. If I use an accountant, I can forget about Making Tax Digital

5. MTD for VAT doesn’t affect me because I’m only voluntary registered

6. I don’t run a business, so Making Tax Digital doesn’t affect me

7. I checked thoroughly. I’m not affected by Making Tax Digital. So that’s the end of the story… right?

8. Making Tax Digital means I no longer need to submit a tax return

9. Small businesses don’t need to bother with Making Tax Digital

Final thoughts on Making Tax Digital

Going completely digital along with your accounting is finest apply. It reduces admin for you, and frees you as much as spend extra time doing what you like.

However it’s to not say Making Tax Digital requires 100% digitalisation of your accounting.

The principles are generally sophisticated and must be consulted, however typically it’s completely attainable to proceed to make use of paper-based invoicing, for instance.

You simply want to make sure the main points are transferred into your accounting as quickly as attainable (or ideally use your accounting software to issue the invoices within the first place, so the information is already there).

And for all these occasions when paper can’t be prevented—whenever you obtain a receipt after buying one thing, for instance—you need to intention to get the information into your accounting as quickly as attainable.

Actually, utilizing an app similar to AutoEntry means you possibly can automate this proper there after which utilizing your cell phone’s digital camera, with out having to fret about it later.

It’s not unnatural to see Making Tax Digital as an try by HMRC to see extra of your accounting information.

However the actuality is that, up to now not less than, HMRC hasn’t required companies at hand over any extra information than it has beforehand.

MTD for VAT means you continue to must submit nothing greater than the identical 9 containers of knowledge on your VAT Return, for instance. You simply should do it digitally, and preserve digital information.

What’s altering with MTD for Income Tax is that it is advisable to let HMRC see the information extra steadily.

You need to make periodic updates not less than quarterly for every enterprise you use.

Though the periodic updates don’t have to be correct, the objective is to let all people have a greater concept of the tax place—together with you.

This implies you will have a extra intimate understanding of your money stream, so can plan higher.

HMRC says a key driver behind Making Tax Digital is to shut the tax hole—the avoidable errors and fraud that imply billions of kilos of tax isn’t paid yearly.

In the event you’ve been finishing your tax returns appropriately then MTD shouldn’t imply you pay any extra (or much less) tax than you’d if MTD hadn’t been launched.

MTD is only a totally different (and higher) manner of calculating and reporting the identical outdated taxes we’ve been doing for years.

Making Tax Digital for VAT software program

Uncover how Sage Accounting may also help you get your MTD for VAT submission proper, calculate your invoice and submit your VAT Return with ease.

Find out more

You possibly can proceed to ask an accountant to arrange your books when you use Making Tax Digital. However this positively doesn’t imply you possibly can overlook about MTD’s necessities.

You continue to want to change to software program on your related accounting, and preserve your information digitally too.

It’s the necessity to preserve your accounting information digitally that catches out those that don’t do their very own accounting.

And it leads instantly again to the primary requirement—you’ll want to make use of some type of software program on your accounting record-keeping, even when you’ve determined that bookkeeping isn’t one thing you wish to cope with.

The nice information is that this may be so simple as utilizing a handful of apps in your cell phone.

You possibly can digitalise the data from receipts, invoices, payments and different paperwork, and you may hyperlink an accounting app to your banking so you possibly can all the time see your money stream, and situation invoices electronically.

Communicate to your accountant, when you’ve got one, about one of the simplest ways ahead.

This was definitely the case again in April 2019, when MTD for VAT was first launched.

However it’s not the case now.

MTD for VAT has been prolonged to each enterprise registered for VAT.

In different phrases, all VAT-registered companies want to make use of software program for his or her accounting, and digitally preserve their accounting information regarding VAT.

This is likely one of the trickier gotchas that catches out many individuals.

For instance, any person who rents out a single property may not think about themselves to be operating a enterprise. In spite of everything, it’d demand little or no of their time throughout the 12 months.

Or any person who has a aspect hustle doing freelance work, however in any other case works a full-time job by way of which tax is paid by way of PAYE, may not think about themselves to be operating a enterprise.

However they’re certainly doing in order HMRC is anxious. Due to this fact, the principles of MTD could apply to them.

Each landlord with a rental income above £10,000 might want to observe the MTD for Revenue Tax guidelines as of April 2024, for instance.

If the freelancer talked about earlier earns greater than £10,000 exterior of their day job, they too might want to observe the principles for MTD for Revenue Tax and cease utilizing Self Assessment for declaring that earnings.

And it goes with out saying that if any particular person is registered for VAT, they too should register for MTD for VAT.

For instance, any person with a passion promoting objects on-line who has registered for VAT is taken into account to be operating a enterprise and due to this fact can be included within the scope of MTD for VAT (and maybe MTD for Revenue Tax).

It is perhaps, however there are different issues associated to MTD which may have an effect on you when you’re a sole dealer.

Foundation interval reform

This transition will happen throughout 2023/24, and will have an effect on any sole dealer or unincorporated enterprise, no matter whether or not MTD for VAT or MTD for Revenue Tax applies to them or not.

Right here’s why: all companies have accounting dates at which level they draw up their accounts.

The 12 months previous to this is named the premise interval.

For a lot of sole merchants, the accounting date and foundation interval match the tax 12 months.

In different phrases, the premise interval runs from 6 April to five April the following 12 months.

Nonetheless, it’s attainable to have accounting dates and a foundation interval that doesn’t match the tax 12 months (e.g. 1 January to 31 December).

To make life simpler for individuals who enrol for MTD for Revenue Tax, HMRC is introducing foundation interval reforms that may imply all non-incorporated companies similar to sole merchants should change to utilizing the tax 12 months for his or her foundation interval, and use 5 April for his or her taxable date.

New points-based penalties

A brand new points-based penalty system applies to late submissions from January 2023.

As an alternative of instantaneous fines, companies will incur factors. And as soon as the factors attain a given threshold, a positive will mechanically apply.

Initially, solely MTD for VAT is affected however when MTD for Revenue Tax begins in April 2024, the brand new factors system will apply there too.

Then as of April 2025, it’ll apply to all Self Evaluation submissions too, though that is exterior the scope of MTD.

That is largely false.

If it’s important to observe the MTD for VAT guidelines, for instance, then you definitely’ll nonetheless must submit your VAT Returns. It’s simply that this should now be performed digitally, by way of software program.

It’s true that MTD for Revenue Tax means there’ll not be any must submit a Self Evaluation tax return (the SA100).

However that is successfully changed with the yearly remaining declaration, wherein you crystalise and log off your earnings and expenditure to calculate your tax and Nationwide Insurance coverage cost.

As with Self Evaluation tax returns, HMRC will evaluation this.

We don’t know a lot for sure but concerning the guidelines of MTD for Company Tax. However it appears this can once more retain the Company Tax Return—however would require it to be submitted digitally.

That is largely false, however there’s some reality to it in relation to MTD for Revenue Tax.

First, it’s necessary to notice that MTD for VAT applies to any enterprise registered for VAT. Turnover doesn’t matter. So, it impacts the smallest VAT registered enterprise as much as the biggest company.

Nonetheless, upon its launch in April 2024, MTD for Income Tax will solely have an effect on these whose earnings is over £10,000. After which, in April 2025, it’ll solely have an effect on normal partnerships which have earnings over £10,000.

These people or normal partnerships with earnings beneath £10,000 will proceed to make use of the Self Evaluation system, similar to they all the time have performed.

Is it attainable MTD shall be expanded to partnerships, sole merchants or landlords with earnings beneath £10,000?

It’s maybe possible, however HMRC hasn’t made any announcement about it but.

Making Tax Digital isn’t sophisticated however there’s a requirement to know the principles if it impacts you.

Hopefully, a few of the solutions above ought to’ve dispelled the pervasive myths which have arisen round Making Tax Digital.

Getting your taxes proper is made simpler by MTD, and as such getting a transparent understanding of the brand new guidelines is an effective step in the direction of operating your online business extra easily, decreasing admin and doing extra of what you like.

Editor’s word: This text was first revealed in December 2021 and has been up to date for relevance.

A information to Making Tax Digital for VAT

Need assistance with Making Tax Digital? Obtain this free information to study MTD for VAT, so you possibly can ship your VAT Returns in step with HMRC’s necessities.

Download your free guide


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