Following the 2019 rollout of Phase 1 Making Tax Digital (MTD) for businesses with a taxable turnover above the VAT threshold of £85,000, the fundamental change to the way the tax system works will soon be extended to all other VAT registered businesses.
With an aim of digitising the UK tax system, MTD is transforming tax administration so it is more effective and easier for taxpayers to understand. It means you must keep your business records digitally, and can only send VAT returns to HMRC by using compatible software.
From April 2022, MTD will be rolled out to include all VAT registered businesses under the turnover threshold of £85,000 and those with an exemption for MTD Phase 1.
The change will mean:
- Form filling is eradicated – taxpayers shouldn’t have to tell HMRC information that it already knows.
- Taxpayers will have access to their own digital accounts – all information will be automatically uploaded.
- Unnecessary time delays are eliminated – the tax system will operate in “real-time” keeping everyone up to date and removing the risk of missed deadlines.
By transforming the experience of taxpayers, the process will be simpler; ultimately reducing the burden for business owners. You will be able to register, pay, file and update your information at any time of the day or night and at any point in the year. You will no longer have to wait until the end of each tax year before knowing how much tax you should pay, avoiding any surprises and helping you to plan your finances with far more certainty.
You will, however, still be responsible for ensuring that your tax records are correct and advising HMRC about information that is not reported through other means.
There are a number of things you’ll need to do to make sure you’re prepared, here are our 4 steps to get prepared.