In this article, we look at what Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is and its impact of on trade businesses. Read more...
What is MTD for VAT?
Everything you need to know about MTD for VAT You may be wondering what Making Tax Digital for VAT is and how it will ...
Everything you need to know about MTD for VAT
You may be wondering what Making Tax Digital for VAT is and how it will affect your business. To put it simply, it is the process of bringing the tax system into the digital age. This will help save you time and money, but it will only apply to businesses with an annual turnover above the VAT threshold.
To make the most of this change, you should use compatible software. These VAT returns will need to be made through the new MTD for VAT system but importantly the sales and invoices that make up the VAT return must be stored on a computer and linked through to the VAT return.
That’s the big difference from the current web form for VAT returns that 98% of businesses use already. Keep reading to learn more about what MTD for VAT is.
Have you tried Powered Now?
What is Making Tax Digital?
Making Tax Digital or MTD is HMRC's plan to help businesses and individuals to get their tax right and keep on top of their tax affairs.
MTD for VAT was introduced in April 2019 for businesses with taxable turnover above £85,000. From April 2022, MTD for VAT will also be applicable to self-employed businesses and landlords, as well as businesses under the VAT threshold. There are many reasons why you should adopt MTD for VAT. It will help you comply with the new rules and enjoy increased productivity. In addition, MTD will also help you get your taxes back on track.
Once a business has switched to MTD for VAT, it will no longer be able to submit the web-based VAT return. The VAT return must be made by compatible software that HMRC has checked out. This software must store or link through to the records that make up the VAT return. So, it must be possible to see, from the original records, how each box in the VAT return was calculated.
In order to be compliant with Making Tax Digital for VAT, businesses must adopt digital accounting software. By April 2022, all businesses with taxable turnover of over £85,000 must follow these rules. After that date, all businesses must begin using digital accounting software. It is not too late to sign up, even if you are not a VAT-mandated business. Make sure you've got the right software before the deadline.
Once you've established your MTD for VAT strategy, you need to find a suitable MTD software solution, like Powered Now. The software should be compatible with HMRC's MTD rules and pull information from digital records.
The new system requires businesses to keep digital records, which can be done via a spreadsheet or cashbook software. Keeping digital records allows them to calculate VAT transactions and summarise them for VAT returns. The Step-by-Step Guide for Businesses contains more information. If you're not sure how to begin, you can consult the MTD website for more information. It is essential that businesses sign up before making the change.
The introduction of MTD for VAT will cause significant changes for 1.1 million businesses and civil society organisations. While businesses that use technology to manage their VAT will experience minimal costs when transitioning to MTD, smaller businesses and organisations that don't have the necessary technology may face significant one-time transitional costs. The implementation of MTD is not only about improving efficiency but also accuracy. Make sure you're ready for it by making sure your accounting software is MTD-compatible.
Fortunately, HMRC has worked with businesses of all sizes to prepare them for the new tax system and has introduced innovative software to help them get ready. It's essential that you use software designed to support MTD for VAT.
Is MTD just for VAT?
Yes, Making Tax Digital (MTD) is just for VAT - for now. MTD for ITSA will start in April 2024, which means that landlords and businesses with annual turnover above £10,000 will have to register.