Making Tax Digital – exactly where are we now?
The most welcome news announced in our world recently has been the postponement of ‘Making Tax Digital (MTD) for individuals’.
Also, the proposal to align self-employed profits to tax years rather than the complex basis period rules we currently have, has also been postponed.
Making Tax Digital involves everyone keeping digital records of income and expenditure (or if you operate a business, sales and purchases) coupled with the use of software to submit quarterly returns to HMRC, in addition to the annual Tax Return submission.
During the pandemic, we’ve all had to adapt to new working practices. We’ve reverted to digital tools to communicate remotely and work collaboratively but are we, as individuals, ready for digital tax reporting yet? Probably not.
Sole traders and landlords with income of £10,000 or more will now be required to operate Making Tax Digital for Income Tax Self-Assessment from April 2024 (but general partnerships will not be required to join MTD until April 2025).
Other partnerships (such as LLPs and those with corporate partners) will be also be required to join MTD from a date, yet to be announced.
It is proposed that the transitional year for aligning self-employed profits to tax years will be 2023/24. This could mean that you’ll be taxed on more than 12 months of profits in 2023/24 which might result in some of your profit being taxable at a higher rate of tax than it would have been, and tax becoming payable sooner than before.
Conversely, if your business has struggled through the pandemic, consider altering your accounting year end to potentially reduce higher tax rates in later years.
Call us on 01223 810100 to discuss how changing your accounting date may help you with your cashflow.
A reminder that all VAT registered businesses – irrespective of their income - must keep digital records and submit their VAT returns to HMRC using compatible software under MTD from next April – that’s less than six months away!
If you’re not making tax digital ready, call Chloe on 01223 810100 for help and support.
There are a few exceptions to MTD including non-resident companies, Trustees, Executors and foreign businesses of non-UK domiciled individuals. Also, if you are unable to use digital tools to keep records or submit quarterly updates, you may be exempt from MTD if a successful application is made to HMRC.