Making Tax Digital (MTD) is a push by the UK government to gradually ease the tax filing process for both individuals and institutions, in order to improve their grasp on financial affairs. MTD initiated in 2019, and as of 1 April 2022, has come to cover all Value Added Tax (VAT) registered businesses under its purview. Now in its second stage, MTD is replacing annual Self-Assessment Tax returns, and by 2024, it should cover Income Tax for all self-employed business owners and landlords. Additionally, by April 2025, this should also include partnerships with individual partners, and it is believed that other kinds of partnerships will soon follow.
In its third stage, the MTD programme aims to include Corporation Tax; however, His Majesty’s Revenue and Customs (HMRC) has stated that this will not occur until post-2026. Read on for a deeper analysis of the changes MTD has brought to the UK tax system, the various elements of MTD filing, and how outsourcing management accounting and reporting services can ease the transitionary process.
A major shift that the introduction of MTD has led to within the UK tax system is that those who fall under its purview now have to submit four quarterly reports on their income and expenses, instead of one yearly Self-Assessment Tax return, to HMRC. This includes self-employed business revenue and property revenue, as MTD currently affects self-employed business owners and landlords falling under the UK tax system. From the start of the UK financial year on 6 April 2022, the deadlines for report submission are 5 August, 5 November, 5 February, and 5 May.
Additionally, MTD has made it necessary to adopt digital record-keeping practices, and to use accounting software in order to maintain compliance with its parameters. The UK government has set up portals and pilot programmes to raise awareness of MTD’s specifics, along with the manner in which individuals and institutions are expected to undertake the new, digitised tax filing process. HMRC has also mandated the implementation of digital links by businesses through their systems, in order to create an unbroken electronic chain of information from the accounting system to the VAT return (this will progressively come to include other kinds of tax).
Despite its benefits, HMRC has allowed some businesses and individuals to remain exempt from inclusion within MTD’s purview. These include charities, community amateur sports clubs, and potentially insolvent businesses as well, along with individuals that cannot digitise their accounts-keeping, owing to age, disabilities, religious restrictions, or geographic remoteness. For those who must adhere to MTD, however, digital records of the following documents are now necessary for tax filing:
Let’s have a look at some real-world cases, where MTD has benefitted business owners.
Below is a quote from a business owner of a hardware shop in Bristol, discussing her positive experience with MTD, and how her accountant’s support assisted her in adapting to the shift in UK taxation.
“When MTD was coming into effect, my accountant advised me that it would make the most sense to convert to cloud software as this would enable me with the collaboration and instant backup I required to get peace of mind. During set-up, I found it tricky to get started. However, with my accountant’s support, things soon became clear, and I was able to learn how to always keep my bookkeeping up to date. I also learnt how to do my VAT returns, and submit these to HMRC, which helps both my business and the production of my year-end accounts.”
One of the Practice Partners at a dental clinic in Somerset spoke with the UK government, expressing the benefits that MTD-compliant software has brought to her business.
“With MTD coming into effect, I knew I needed to move to a cloud-based accountancy package. From the outset, my accountant was on hand to recommend suitable software for my business, and provide me with the training, guidance, and support on how to get the software set up and make it user-friendly for my needs. My MTD software has enabled me to not only keep on top of my bookkeeping, but it has allowed me to collaborate with both my business partner and my accountant to input data, track my finances and spending, produce monthly payments, and organise payroll for my employees. On top of this, the biggest benefit to me is the 24/7 access it allows; I can access it anytime and from anywhere.”
While timely accounting support helps to navigate MTD successfully, and become proficient with MTD-compliant software, such services may be difficult to acquire at industry standards. Deploying them at an operational scale for several UK companies is challenging as well, owing to a shortage of capital in the post-COVID economy. Learn more about why outsourcing management accounting and reporting services is a valuable solution for UK businesses that are adapting to MTD’s policies.
Outsource management accounting and reporting services serve the following benefits, during this transitionary period:
The UK government is gradually digitising the tax system, in order to ease the process of reporting and filing all forms of tax. Management accounting and reporting services will help companies adjust to the new norms, and as the UK market is currently recovering from the effects of COVID, outsourcing these services is a financially prudent decision.
Get in touch with us to gain access to a skilled team of experts trained to stay abreast of the changes and updates brought to UK taxation by MTD.