Making Tax Digital - 2022 Update

What do we currently know about MTD?

·        Under MTD, HMRC aim to join up their internal systems and so create one account for each taxpayer for all their different taxes within HMRC.

o   Via their 'digital account' taxpayers will be able to view all their payments and offset overpayments in one tax account against underpayments in others.

o   HMRC seek to become "one of the most digitally advanced tax administrations in the world".

·        MTD imposes new quarterly filing and potentially payment obligations for businesses and landlords.

·        Implementation: 

o   The first phase of MTD has been for VAT.  

o   The second phase affects unincorporated businesses and landlords in respect of their Income Tax obligations.

o   The third phase will affect companies in respect of their Corporation Tax obligations.

·        A new late filing and payment penalty system will eventually apply to quarterly returns and annual declarations.

Current timetable

·        VAT:

o   From April 2019, most VAT registered businesses with turnover exceeding the VAT registration threshold must retain digital records and submit their VAT returns to HMRC using 'functional compatible software'.

o   From April 2021, 'digital links' between software programs, applications or products must be in place. 

o   From April 2022, all VAT registered businesses must retain digital records and submit their VAT returns to HMRC using 'functional compatible software', unless an exemption such as digital exclusion applies. This includes those below the VAT registration threshold. 

·        Income Tax:

o   From April 2024, self-employed businesses and landlords with business turnover above £10,000 are to report under MTD for Income Tax. This measure has been delayed by a year.

o   From April 2025 general partnerships join MTD.

o   Other partnerships: the date at which all other types of partnerships will be required to join will be confirmed later.

o   An MTD for Income Tax pilot is currently running.

·        Corporation Tax:

o   From April 2024 companies can start using an MTD for Corporation Tax (CT) pilot scheme.

o   From April 2026 companies join MTD for CT.

Accounts and returns?

·        Although HMRC claims that the annual tax return will go, businesses will still need to prepare year-end accounts in order to reconcile their quarterly payments and claim various reliefs and make accounting adjustments.

·        They will be required to file a year-end declaration, instead of a Self Assessment (SA) return or Corporation Tax (CT) return.

·        The key difference between the year-end declaration and a tax return, other than in name, appears to be that HMRC will pre-populate some of the return figures e.g. bank interest, income from employment, pensions, etc.

·        For the self-employed, it is assumed that HMRC might attempt to pre-populate the year-end declaration with data submitted in the quarterly return figures. This is unlikely just yet, as is already the case with VAT, a business will still need to reconcile their quarterly returns to their year-end accounts and so all must reconcile to the end of year declaration.

·        All taxpayers will need to check that pre-populated data are correct.

·        HMRC is consulting on changing the way that tax assessments interact with accounting basis periods. Its systems may not cope if say five million taxpayers all pressing 'send' at once.

Impact on businesses

·        Businesses that do not use smartphones, software or computers may be obliged to do so.

o   Free software will be available.

o   MTD is likely to be expensive for many micro and small businesses. Some two million businesses are not represented by agents and they will have to learn the new systems.

·        Some exemptions will be available: it is already indicated that some nano businesses (turnover below £10k) will be exempt from the new MTD for Income Tax regime. They may be brought into the regime later.

·        HMRC expects that apps will 'prompt' taxpayers when they purchase goods and services so that taxpayers will learn the tax deduction rules on a day-to-day basis.

·        HMRC expects taxpayers to obtain their guidance online and not via the telephone. It will be developing online resources to reduce human interaction by telephone.

How can Tacconi Green & Co help?

Our staff are kept up to date with the latest publications regarding MTD to help ensure our advice is up to date. For existing clients we will get in touch in advance of any changes to ensure no one misses the deadline.

Apps and software will continue to be developed. Tacconi Green will keep on top of the latest products and ensure staff have the relevant training.

If you do have any questions regarding any stages of Making tax digital, please do get in touch on 01480 300945 or enquiries@tacconigreen.co.uk.