Making Tax Digital (MTD) was announced as the new initiative by HMRC to revolutionize and modernize the tax system in the UK.
At the heart of MTD is that all financial records will have a digital fingerprint. Only using these digital records, a HMRC approved software can sift through the businesses financial data to calculate the tax in question, and then submit the database of records and the calculation through to HMRC. In essence, the software will create a direct digital link between the financial records and the calculation in an attempt to increase the accuracy of the tax calculation in question.
On 21st July 2020 the Treasury published a 10-year plan to modernize the UK’s tax system which outlines a road map for the transition into MTD for other parts of the UK taxation system after the initial roll-out for MTD for VAT.
MTD for VAT
MTD for VAT had a soft-landing period where the rules for this ‘digital-link’ were relaxed but prior to COVID-19. Pre-COVID, accountants were preparing for all digital links to be accurate & in place for submissions from 1st April 2020. However, due to the pandemic, it has been postponed till April 2021.
Furthermore, from April 2022, MTD for VAT will apply to all VAT registered businesses and just those that have a turnover greater than the current VAT threshold of £85,000.
MTD for Income Tax
The Road map for HMRC states that their goals is as of 6th April 2023, MTD for Income Tax will be mandated for all self-employed and unincorporated landlords with incomes exceeding £10,000 per year.
This means that any self-employed person or landlord that has a turnover equal to or greater than £10k will need to keep digital records of their business finances and submit their financial data information at least quarterly to HMRC, using a 3rd party MTD compliant software.
The submissions made every 3-months must include digital links of:
- Income & expenses (sales and expense invoices/receipts)
- Allowances & Adjustments
- A confirmation of the sources of income for the business with an End of Period Statement (EOPS)
In addition, if there are any other sources of income, reliefs and allowance, capital gains, etc, they will need to be submitted (at the very least) annually, relating to the tax year.
MTD for Corporation Tax
In the report by the Treasury they announced that they will begin consultation on MTD for Corporation Tax in the Autumn of 2020.