Since MTD seeks to reorganize the tax system in the UK, change is unavoidable and rarely simple to adjust to. MTD is here to stay, though, so both individuals and businesses need to be aware of it. To help you succeed with the new system, we'll go over five things you should know about MTD in this post.
1. Annual Tax Returns Are a Thing of the Past
One of the main highlights of MTD is the end of filing annual returns. You’ll no longer have to submit 12 months’ worth of data at the end of every year. Instead, you submit reports to HMRC every quarter. Each time you file, you can see HMRC’s calculation of the tax you owe.
Businesses will benefit by providing data every three months, even though it will require more bookkeeping work and more deadlines to meet. Being up to date with your business's finances ensures that you are always informed of your tax liability. You can steer clear of unpleasant surprises at the end of the year when you are always aware of your debt.
2. You Will Need to Use Software, But You Can Keep Your Spreadsheets
MTD requires businesses to go digital. As a taxpayer, you’ll be required to use accounting software so you can upload your data to HMRC’s interface. The transition shouldn’t be difficult if you are already using a digital accounting system. But if you are still doing your accounting on paper, you will need to move to a digital system.
Though HMRC didn’t initially encourage the use of spreadsheets for financial record keeping, they have now approved the use of MTD-compliant spreadsheets. As long as the spreadsheets can be integrated with an accounting app for the upload to HMRC, they can still be used.
3. The Timeline
MTD began in 2018. HMRC had already launched a private pilot program for certain taxpayers who had voluntarily subscribed. Here is the timeline of the MTD rollout:
April 2018: Pilot testing begins.
April 2019: All businesses with turnover above the VAT threshold of £85,000 are required to keep digital records.
April 2020: HMRC increases the scope of MTD to include sole traders and partners with income between £10,000 and £85,000.
April 2021: End of soft landing period. Businesses are required to establish digital links using HMRC-authorized accounting software or HMRC-authorized API bridging solution.
April 2022: All VAT-registered businesses even if their taxable turnover is below the threshold of £85,000 are required to join MTD.
4. MTD Doesn’t Mean Paying More Taxes
Though MTD means more reporting deadlines, it doesn’t mean you have to pay more tax than usual. The new system just eliminates tax reporting errors. It’s possible that if you have been making errors in your tax returns, your tax bill might go up when those errors are corrected, but not because of any change in the tax laws. The new process will correct your errors so that you pay what you owe–which means that if you’ve been doing things right up to now, your tax bill won’t change at all.
5. Some Taxpayers Are Exempt from MTD
Despite all of MTD's advantages, HMRC has let certain companies and people be excluded. MTD does not apply to charities, local amateur sports teams, or possibly bankrupt companies.
HMRC is also aware that certain people are unable to transition to digital because of their age, religion, physical condition, or remote location.
Make sure you're ready for making tax digital as it will need significant adjustments to the way you submit taxes. Choose the accounting software that is best for your company and get in the habit of updating your financial records. When the time comes to transition to online tax filing, it will be a lot simpler if you become familiar with online accounting first.
Conclusion
Keep up-to-date with any changes in MTD regulations. Staying informed will help your business remain compliant and take advantage of any new benefits or features that MTD offers.
Monktaxsolutions is here to make your transition into MTD smoother. We are offering 70% off on top of your annual discount for the first 12 months. Don't miss out on this opportunity at +1–844–318–7221 to start your journey towards MTD success. Let us help you optimize your financial Services performance and secure your future.
