Date posted: 11th Aug 2020
Lee Watson, tax director at Clive Owen LLP, is warning businesses not to fall foul of the Making Tax Digital (MTD) programme as the Government continues to extend the scheme.
Lee Watson said “Making Tax Digital was introduced for businesses that were compulsorily registered for VAT, in April 2019. There were a few exceptions to digital reporting and record keeping but it appears that the government aim is to bring all VAT registered businesses (including those voluntarily registered for VAT), within MTD from April 2022.
“This means that those businesses will be required to keep records of their business’ transactions electronically. More usually than not, this will mean that the business will need some accounting software, possibly cloud based, to comply with MTD and file any VAT returns.”
However, it is not only those businesses that file VAT returns, that need to comply going forward, as Lee explains: “The government anticipates that from April 2023, any businesses registered for income tax, that have a turnover of more than £10,000, will also be required to keep digital records of transactions and send quarterly reports of income and expenditure to HMRC. This could be a sole trader corner shop that turns over £50,000 or perhaps a landlord with two rental properties with a gross rental income of £12,000. Those businesses would need to comply with the MTD regulations and submit quarterly reports to HMRC.”
Businesses that are subject to corporation tax have no fixed timescale for complying with MTD but changes are coming there too, as Lee outlines: “Whilst the government has said that it will consult on the timeline for bringing in the quarterly income reporting for companies that are registered for corporation tax, it will happen, as the government is keen to close the perceived tax gap. However, many of the companies that it will apply to will already have complied with MTD for VAT so it should not be a significant issue for the vast majority of companies. Companies that are not registered for VAT or are investment companies, will need to take some action, in due course.”
Lee added: “A lot of clients have benefitted from having financial data at their fingertips on iPads and tablets. This has helped them make key business decisions, in real-time, particularly during the COVID crisis. Rather than seeing MTD as a punishment by the government, they have embraced the opportunity to learn more about their business’ financial health and found it a lot more useful than a set of year end accounts, which are already out of date by the time the year end has passed, let alone by the time the accounts have been prepared by the accountants.“
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