Making Tax Digital
HMRC are well underway in implementing Making Tax Digital. Currently VAT registered businesses are reporting via software to HMRC on a quarterly basis.
From April 2024 this will be expanded to non VAT registered sole trader businesses and landlords with turnover in excess of £10,000 per year.
How will this effect me?
The main idea of MTD is periodic (quarterly) digital updates of information to HMRC.
Business owners and property landlords will be required to submit quarterly information in respect of income and expenses. These submissions are not replacing the need for annual profit calculation but are an additional step to provide an indication to HMRC that records are being maintained, and an indicative level of net income currently being received.
What records do I need to keep?
Part of MTD is the requirement to keep records digitally. This does not necessarily mean the use of expensive software – for some businesses, the use of simple spreadsheets will be perfectly adequate.
However, software that allows submission directly to HMRC will offer efficiency for most business owners. Importantly, there is not a “one size fits all” approach – the appropriate software for a private landlord is likely to be different to the software requirements of a large business with detailed stock control and invoicing requirements
How is this different to the current process?
Currently, there is an annual tax compliance process, built around the self-assessment tax return. The process is to collate all trading and other income and submit the data to HMRC before the 31 January following the end of the tax year.
The MTD process has additional requirements, that need to be considered. As mentioned above, traders and landlords have a quarterly update process, and the deadline for that process is one month. After the tax year end, there will still be an annual process, of adjusting trading income, and submitting that to HMRC together with non-trading income. In the future, HMRC will be able to obtain data directly from third parties (e.g. HMRC will obtain your bank interest figures directly from your bank), so the annual submission process will be more straight forward.
What are you doing at K D Chapman & Co to prepare?
We are working with our software providers and HMRC to ensure suitable packages will be available to our clients.
For clients not able or not wanting to keep their own digital records then we will be offering a service in house to do this for them.
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