The UK Government recently introduced a plan to make all tax-related processes take place electronically. This is known as the Making Tax Digital (MTD) scheme. It is slowly being rolled out over the course of the next few years.

While originally started in April 2019, the need for all VAT-registered businesses to follow MTD regulations was put into legislation in April 2022. At the moment, Making Tax Digital is only being used for VAT returns.

In April 2024, Making Tax Digital will be extended to paying Income Tax as well. It will start off with small businesses and landlords, filtering through to partnerships by April 2025. From 2026 onwards, we can expect MTD to be used for Corporation Tax as well.

The end goal for the Making Tax Digital scheme is to make the tax administration process a lot simpler, easier and more effective for taxpayers across the United Kingdom.

Under the MTD scheme, you will be expected to pay tax four times a year, rather than once every 12 months.

For VAT, any VAT-registered company with sales above £85,000 will need to follow the rules set out by Making Tax Digital. This includes the use of MTD-compatible software such as QuickBooks and Xero to send VAT returns electronically, unless the business wants to resort to linking complicated spreadsheets to their tax account.

Of course, not every business, especially those that are run by one person, will be able to use accounting software packages. Therefore, the government has allowed for a few exemptions from MTD.

For example, anyone who cannot use electronic tools for whatever reason, whether it be on religious, financial, disability or remoteness grounds, will be exempt from MTD as long as they have informed HMRC. Furthermore, charities and businesses/landlords with revenues of £10,000 or less also do not have to comply with MTD.

As usual, businesses will need to be careful when filing and sending their tax returns. This is to avoid penalties for sending them past the deadline and/or making mistakes in the calculations.

For VAT returns, make sure to include the following information:

  • The date of each transaction
  • The value of each transaction (excluding VAT)
  • The rate of VAT charged
  • Business information (including the VAT registration number)

HMRC have stated that they will be more lenient in handing out penalties for any business’ first year under the MTD scheme. They understand that some businesses and individuals will have never used digital accounting software before, and will need some time to get used to how they function.

Nevertheless, we understand that filing tax returns is going to get even harder for some people. Here at PPS Chartered Accountants, we can help send perfect VAT and other tax returns on time to HMRC to save you the hassle.

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