When you work for yourself, the rules surrounding tax and finances can sometimes be complicated. The latest change on the horizon is the government initiative, Making Tax Digital.
What is Making Tax Digital?
Making Tax Digital (MTD) is the government’s plan to update the UK tax system, to streamline the administration process and abolish the need for paper records. Under the new rules, only information submitted through bespoke software will meet the requirements of tax law.
When will the changes come into effect?
The changes are set to be staggered throughout the next few years, and will be implemented at different stages depending on your circumstances:
- If you are VAT registered and your turnover is above £85,000 for the financial year, you will be required to record transactions only digitally starting in the new financial year. The current online VAT return will no longer be available and instead, you will need to use the MTD compliant software.
- If your business is VAT registered but your earnings are below the VAT threshold, you will not be required to keep digital accounting records until the 2020 financial year. However, you will need to monitor your annual turnover and if this increases above the £85,000, you will be required to comply with MTD.
After April 2020
- Income Tax (self-employed, partnerships, trusts and landlords who complete self-assessment tax returns), will not be digitalised until after 2020.
- Corporation Tax (limited companies): the timings have yet to be confirmed but will not be mandatory before April 2020.
Are there any exemptions?
The exemptions remain the same for digital tax as for the current online VAT filing system: this includes those who cannot engage for religious or cultural reasons or due to factors such as age, disability or location.
When Making Tax Digital becomes mandatory, there will be an exemption for businesses and landlords with a small turnover. However, this level has not yet been set.
What do I need to do?
Nothing - your accountant will take care of switching your accounts over to the mandatory VAT reporting software in time for the deadline. You will be kept informed about these changes and whether there are any actions required to transition to digitalisation in the future.
Find out more
For more information regarding the new tax process, our team of accountants are on hand to help. If you have any questions or concerns, drop us an email at firstname.lastname@example.org or call us on 0800 464 0381.