What Does Making Tax Digital Mean?
A brand new government initiative that is designed to bring tax reporting up to date has begun. Making Tax Digital is this new initiative and it’s going to bring the UK tax system into the limelight as one of the most digitally advanced tax administrations throughout the globe. The way your business reports taxes will change, and it will change for the better. Most businesses will need to have digital records for their finances and while a lot of businesses already do, it’s going to apply to more and more across the board. The software that will need to be used will have to be compatible with the reporting systems for HMRC reporting, so businesses with manual or Excel accounting systems will be affected.
All different types of business taxes will be covered under the new scheme but it’s only the VAT for Making Tax Digital that has been given a sure roll-out date. All remaining tax reporting options will follow from 2020 and over 1 million small businesses in the UK will be affected by Making Tax Digital. The sooner your business converts to digital accounting, the better and easier the transition will be. Asking your accountant to help is the best step that you could take for digital tax reporting.
When Does Making Tax Digital Start?
Making Tax Digital actually was announced in 2015 and begun roll-out in 2019. Businesses that had a taxable turnover exceeding the VAT registration threshold of £85,000 had to keep their records digitally with the correct software. From April 2019, these businesses had to submit their digital VAT returns. On 21 July 2020, the UK Government committed to a timetable that was specific for changing the law, ensuring that Making Tax Digital for Income Tax was a legal requirement and not just a suggestion. HMRC asked that the next accounting period starting on or after 6 April 2023, all of the Income Tax Self Assessment customers with a turnover of £10,00 or more will be required to complete their taxes with Making Tax Digital. This is to include all landlords, too.
Who Does Making Tax Digital Apply To?
HMRC confirmed that there is an exemption from Making Tax Digital to any businesses that are unincorporated and landlords who have a gross income or annual turnover of less than £10,000. Making Tax Digital will also not apply to minorities who cannot access digital tools and thus cannot submit their taxes online. This is usually a group that has issues due to age, disability and even how remote their location is. These exemptions are case by case, though, so if you think you should be exempt, it’s best that you contact your accountant or HMRC directly to check.
Making Tax Digital for Income Tax is for UK businesses and landlords who will submit a Self Assessment Tax Return. It’s for all those with an income over £10,000 and if you submit a Self Assessment tax return but you don’t have a business or property income, it doesn’t apply to you.