In a written statement to the House of Commons on September 23rd, a delay in the roll-out of the UK Government’s Making Tax Digital (MTD) initiative was announced. This gives a further year in which businesses must become compliant with the new Income Tax Self-Assessment (ITSA) regulations.

In addition, it should be noted that the Association for Chartered Certified Accountants (ACCA) and other trade bodies are continuing to lobby parliament to lessen the pressure being felt within the accounting sector due to MTD. The additional workload for accountants and businesses in order to achieve compliance, along with the cost of new software, are both reasons that have been cited.

The good news is that the Government seems to be listening – perhaps not surprisingly when around 10 per cent (120,000) of businesses failed to meet the earlier 2019 deadline for VAT compliance. Many smaller businesses, in particular, are still operating paper VAT returns and are storing essential documents in a drawer or shoebox.

There is therefore no absolute certainty about the MTD deadlines in the coming years, but for the time being the situation looks like:

Today

Most VAT-registered businesses with a taxable turnover of £85,000 or more now have to maintain digital VAT records, and tax returns must also be submitted via MTD-compatible software.

What’s coming next?

April 2022 – VAT for all businesses
From April 2022, all businesses that are registered for VAT must keep their VAT records in digital form. Any software can be used for this purpose, including a combination of spreadsheets and accounting packages. However, if spreadsheets are used, the accounting package must be able to extract the relevant information from them electronically, in order to be sent on to HMRC without any manual adjustment. The VAT payment deadlines will also not change.

April 2024 – Income Tax changes
From April 2024, the MTD rules will apply to Income Tax Self-Assessment (ITSA) for landlords and unincorporated businesses with total property or business income that exceeds £10,000 a year. Every quarter, landlords and businesses paying income tax according to MTD will need to submit their income and expenses to HMRC using software that is MTD-compatible. This will generate an estimated tax calculation, which will form the basis for their budgeting for tax payments. This estimate will be based on the information entered. It will not be subject to any tax-relievable payments (pension contributions or gift aid for example) or any tax due on other income, for instance from capital gains or investment income derived elsewhere.

Are your accounts digital yet?

If you are self-employed and run a smaller enterprise that is under the VAT threshold, now is the time to act. 2022/23 is not far away and it would be worth becoming familiar with MTD ahead of time. Familiarity with the required software should not be left to the last minute. If you are just setting out as self-employed, you should engage in digital tax recording and submission from the outset. This will avoid having to switch over later on.

You may need to act

If you haven’t already adopted a digital accounting platform, time is running short. Speak to your accountant about MTD and which platform would suit your needs best. If you are considering moving your accounts to the cloud, or from one cloud accounting platform to another, Movemybooks can probably help. Check our pages for moving to Xero, Sage or QuickBooks for more details.

Are you an Accountant?

As HMRC continues to change its reporting requirements, your clients may take the opportunity to change their accounting software. Movemybooks can help you when clients need to migrate data from older desktop software to new cloud accounting platforms.

Moving from non MTD software
Movemybooks can migrate data to a cloud platform from Sage and QuickBooks desktop software. You and your client just need to decide the right MTD-compliant software for them and Movemybooks can help you migrate the data easily.

Preparing for the changes to ITSA in April 2024
The forthcoming changes around income tax self-assessment for property and business related income may also mean it’s a good time to change software. Select a system that works best for your client and that allows you to work on their tax more efficiently. If you have over 30 conversions to complete at once, please contact us as we may be able to help you out.

Want to know more?

MTD is an ongoing initiative by the UK Government’s HMRC. Please visit the UK Government’s website to check the latest updates on the roll-out of MTD.