HMRC have announced that making tax digital ITSA has been delayed to April 2024.
ITSA is Income Tax Self Assessment.
In this article, we will look at the following:
- What is Making Tax Digital (MTD)
- Making Tax Digital Deadlines
- The plans for Income Tax Self Assessment
- Why the delay?
- How to comply with MTD
What is Making Tax Digital?
Making tax digital is part of HMRC’s policy to get all businesses to file tax records digitally. The idea is that in time the whole system will be paperless.
Small Businesses are required to keep digital records and use third-party software to submit tax returns to HMRC.
MTD for VAT was introduced in April 2019 for VAT registered businesses over the threshold of £85,000.
The reason for introducing MTD is to:
- Reduce errors in business accounts and therefore reporting is correct for taxation.
- Reduce paperwork.
- Integrate business administration and taxation.
The following accounting packages are all MTD ready:
What are the Making Tax Digital Deadlines?
As a small business owner, it is essential to know any tax deadlines.
Here are the MTD deadlines for both VAT registered and self-employed
MTD for VAT Deadlines
April 2019, all businesses over the VAT threshold of 85,000 were registered.
From April 2022, small businesses registered for VAT will need to comply.
MTD for Income Tax Deadlines
Making tax digital for income tax was a deadline of April 2023; it is extended to April 2024.
It is for taxpayers with business or property income above £10,000. It will include landlords, sole traders and partnerships.
At the moment, there is no fixed date for all MTD for income tax, but I am sure it will be announced soon.
Making Tax Digital Self-Employed
If your earnings are over £1,000, you need to register as self-employed and complete a self-assessment tax return.
You can also register as a sole trader if your earnings are under £1000. There are a few reasons why you may want to do this, including:
- To claim tax-free child care
- Voluntary contributions to Class 2 National Insurance
Currently, only businesses with business or property income over £10,000 will need to be MTD for income tax ready by April 2024.
The easiest way to ensure that you are MTD is to use compatible software.
There are many different options for software, and it is worth taking your time to choose the best accounting software for your small business. Options included both paid and free versions.
The other option is to use bridging software that works with non-compatible software like spreadsheets, accounting systems and other digital bookkeeping products.
It lets you send the required information digitally to HMRC in the correct format.
Making Tax Digital for VAT
MTD for VAT was introduced in April 2019 for businesses over the VAT threshold of £85,000 for taxable turnover.
Businesses can opt in if their business is under the VAT threshold. It is estimated that about a quarter of those under the threshold has opted in. From April 2022, all companies registered for VAT will need to produce digital records.
If you are registered for MTD, the chances are you will file vat returns online through accounting software.
MTD for Corporation Tax
The government is still planning for corporation tax but has suggested it will not start until at least 2026.
It will give small businesses and accountants more time to get ready.
Why the delay?
Over the last couple of years, businesses have struggled to survive due to the Covid pandemic and changes with Brexit.
Businesses are still trying to recover and may have issues with the supply of products to continue work.
With all the stress of running a business, some will be glad of one change they do not need to implement yet.
Is it Worth Getting MTD Ready?
Although, as a business, you do not need to be ready for making tax digital for income tax yet, it is worth spending the time deciding if the company will be better off getting ready.
The reasons for this are:
- Digital records by using software will help businesses make decisions.
- It is easier at the end of the accounting period to produce the reports required.
- Automating the accounts can save time and money.
- Professional branded invoices using a logo.
- Customers can settle bill payments through the software.
- Keeping track of debts.
- Bank feeds are automatic once set up with open banking.
- Accurate digital record-keeping.
Do I need a Bookkeeper or an Accountant for MTD?
Although you do not need an accountant or bookkeeper to complete your tax, they can be an asset to the business.
One of the main advantages is knowing the tax rules and what the business can claim for. It will help to reduce the tax bill.
A bookkeeper or an accountant can take the stress away from completing the accounts and allow you to concentrate on the sales and other admin tasks.
Making Tax Digital Accounting Software
There are lots of options for accounting software, most of which are MTD Compliant.
It is worth taking your time to choose the best accounting software for your small business. Start by making a list of everything you need; this may include:
- Time management
- Expense Tracking
- Making tax digital
- Invoicing templates
We have produced a list of our best accounting software for small businesses. It looks at the best options for different business types.
One free option that some small businesses use is a software called WAVE Apps. Unfortunately, it will not be compliant with making tax digital. WAVE is concentrating on the Canadian and US market.
A complete list of accounting and bridging software is available on the HMRC website.
Making Tax Digital for Income Tax Conclusion
Self-employed businesses and landlords with a taxable income over £10,000 will need to be compliant with making tax digital from April 2024. The date was April 2023.
VAT registered businesses with a turnover of over £85,000 are already using MTD to submit VAT returns.
The easiest way to comply with digital tax is to use online accounting compatible software.