Making Tax Digital: an update

Making Tax Digital for VAT (MTD for VAT) has been effective for businesses with turnover above the VAT threshold of £85,000 since April 2019. HMRC recently outlined its next steps, including the introduction of Making Tax Digital for Income Tax Self Assessment. Here, we consider the plans.

Extension of MTD to all VAT-registered businesses

Since April 2019, VAT-registered businesses with turnover above the VAT threshold of £85,000 have been required to keep digital records for VAT purposes and provide their VAT return information to HMRC using MTD functional compatible software. From April 2022 these requirements will apply to all VAT-registered businesses, including those with turnover below the VAT threshold. 

Implementing digital links

In April 2020, as a result of the coronavirus (COVID-19) pandemic, HMRC deferred the deadline for businesses reporting under MTD for VAT to have digital links in their recordkeeping for the purpose of transferring information from software and spreadsheets to their online VAT filing. 

HMRC is permitting a ‘soft landing’ period for businesses to have digital links in place between all parts of their functional compatible software. During this period only, HMRC will accept the use of ‘copy and paste’ as a digital link for VAT periods. Businesses will not be required to have digital links between software programs until their first VAT return period starting on or after 1 April 2021.

For VAT periods after this date, businesses’ systems must use digital links for any transfer or exchange of data between software programs used as functional compatible software, as outlined in VAT Notice 700/22. 

The use of cut and paste will no longer be accepted as a digital link from this point. However HMRC will accept the following (please note this list is not exhaustive):

  • linked cells in spreadsheets
  • emailing a spreadsheet containing digital records so the information can be imported into another software product
  • transferring a set of digital records onto a portable device (such as a pen drive or a memory stick) and physically giving this to someone else, who then imports that data into their software
  • XML, CSV import and export and download and upload of files
  • automated data transfer
  • API transfer.  

MTD for Income Tax Self Assessment

MTD for Income Tax Self Assessment will take effect from April 2023 for unincorporated businesses and landlords with total business or property income above £10,000 per year. 

HMRC will pilot the scheme before it goes live. Those with income from one source of self-employment and landlords (except for those with furnished holiday lettings) who wish to participate can find out how to do so here. 

In a written statement, Jesse Norman, Financial Secretary to the Treasury, said: ‘This timetable allows businesses, landlords and agents time to plan, and gives software providers enough notice to bring new MTD products to market, including free software for businesses with the simplest tax affairs. 

‘HMRC will expand its pilot service from April 2021 to allow businesses and landlords to test the full end-to-end service before the requirement to join.’ 

In regard to MTD for corporation tax, a consultation is expected this year, however HMRC has not yet announced a start date. 

No matter if your business is big or small, MTD affects you. As your accountants, we can help you to stay compliant with the MTD rules. Please contact us for more information.

 

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