Your Making Tax Digital (MTD) Guide
Confused about Making Tax Digital? Making Tax Digital can be difficult to navigate. Get ready with Powered Now!
Here we explain everything you need to know about MTD, including MTD key deadlines, how it will impact your business and what you need to do to comply.
If you would like to learn how Powered Now can help, book a demo or start a free trial today.
Making Tax Digital explained
We know that Making Tax Digital can be confusing. That's why we created a video series to explain everything you need to know about Making Tax Digital, its changes, how to get MTD ready and the impact on your trade business.
What is Making Tax Digital?
Making Tax Digital (MTD) is the HMRC project designed to get all businesses and individuals to start keeping their accounting and tax records on a computer. MTD for VAT is already here but over the coming years Making Tax Digital will include Income Tax Self Assessment and Corporation Tax too.
What is MTD for ITSA?
MTD for Income Tax Self-Assessment, also known as Making Tax Digital for ITSA, will require all self-employed people and landlords with sales of more than £10,000 per annum (that is businesses that aren't a limited liability company or equivalent), to submit quarterly profit and loss returns electronically.
How will MTD for ITSA impact me?
Making Tax Digital for Income Tax Self Assessment, also known as MTD for ITSA, will require all self-employed people and landlords with sales of more than £10,000 per annum (that is businesses that aren't a limited liability company or equivalent), to keep digital records of all their business income and expenses.
MTD for ITSA - what do I need to do now?
Business owners and landlords will no longer file an annual self-assessment tax return in the old way, unless you are specifically exempt from MTD for ITSA. You’ll be required to keep records of your business income and expenses in a digital format; send quarterly updates of your business income and expenses to HMRC; submit an end of period statement (EOPS) for each source of income and also do an electronic final declaration.
How to calculate MTD?
The Making Tax Digital initiative is the latest step in a series of government measures designed to support small businesses and improve their performance. Although it will initially apply only to VAT-registered businesses, the initiative is expected to affect all businesses in time.
What is 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.
MTD deadlines - Key dates to know
Deadlines can cause stress but don’t worry, here we explain the MTD deadlines that are coming up so you can stay compliant. April 2022...
Why is MTD being introduced?
The Government wants to make accounting data more accessible to taxpayers. Companies need to transfer paper receipts as soon as possible to accounting software.
When does MTD start?
MTD for VAT started for compulsorily registered VAT businesses for the first VAT return done on or after 1st April 2018. The "soft landing period" that provided an exception to the strict use of digital records directly driving the MTD VAT return and allowing using ‘copy and paste’ came to an end on 1st April, 2021.
What are the penalties for non-compliance with MTD?
Penalties for failing to file MTD for VAT returns on time will follow a points system. HMRC have stated that no actual fines for non-compliance with MTD for VAT will be levied in the first year when the business has made reasonable efforts to comply.
MTD for Income Tax Self Assessment - what it means for your business
MTD is a massive years-long programme to make all things related to tax move into the digital age. This should eventually result in many improvements.
Making Tax Digital and the role of your accountant
MTD, or Making Tax Digital is going to have a profound impact on EVERY business over the next few years. But it’s not only businesses, it will also make a big difference to the way that accountants support their clients.
The basics of VAT in the trade industry
VAT is “Value Added Tax”. This is a tax which every business with sales over £85,000 must add to their sales invoices.
For example, an electrician does a job where they buy £1,000 of materials with £200 VAT at 20%, giving a total materials bill to be paid of £1,200. They do £5,000 worth of labour so they charge £1,000 + £5,000 = £6,000 then add £1,200 VAT at 20%, giving a total bill to the customer of £7,200.
Making Tax Digital FAQs
What is Making Tax Digital for VAT?
Making Tax Digital for VAT, also known as MTD for VAT, is the process of bringing the VAT system into the digital age. From April 2022, all VAT-registered businesses are required to use MTD for their VAT returns. This means, using compatible software like Powered Now to keep digital records and submit VAT statements to HMRC. Make sure you've got the right software for your business.
What is MTD compatible software?
MTD compatible software is software that allows you to keep digital records and submit VAT Returns without needing to visit HMRC’s website. HMRC has recognised a number of compatible software apps like Powered Now that you can use for Making Tax Digital for VAT.
When should you start preparing for MTD for ITSA?
MTD for ITSA comes in on 6th April 2024.
Here's how to get started:
MTD for ITSA will require you to keep digital records of your business's income and expenses, including property income. This means that you'll need software that's compatible with MTD and you need to use this to submit these digital records to HMRC. Make sure you do your research and find compatible software that suits your business needs.
The deadline for actually submitting your final tax return is the 31st of January of the following year. You'll have until midnight on the same day to make your final declaration and pay your tax. You should also prepare any staff that you may have for the change. And there's no need to stress about it, just get started as soon as possible.
How will Making Tax Digital benefit my business?
MTD could be a good opportunity for your business. As you will be keeping records and filing taxes digitally, it will give you the chance to check your income, expenses and profit on a regular basis and this can help you make informed decisions. You’ll have a clear view of your tax obligations and access to your tax information online from anywhere.
What do I need to do to be ready to sign up for Making Tax Digital for VAT?
Choosing software that is compatible with Making Tax Digital is critical to ensuring compliance with the new regulations because you will need it to submit your VAT Return. You will also need a Government Gateway User ID and password (if you don't have one, you can create one when you sign up).
Powered Now, for example, is cloud-based software that allows users to manage accounts from any device. With Powered Now you can create invoices, quotes, expenses, purchase orders and submit your VAT directly to HMRC, keeping on top of your numbers with ease.
When is MTD happening?
HMRC is introducing Making Tax Digital gradually. Here you can find Making Tax Digital key deadlines.
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