The extension of Making Tax Digital (MTD) to cover businesses with a turnover below the VAT threshold and for certain individuals who file Income Tax Self-Assessment tax returns has been confirmed.
A roadmap for Making Tax Digital has been set out by The Treasury starting in April 2022, where MTD will be extended to all VAT registered businesses with turnover below the VAT threshold of £85,000. One year later (April 2023), MTD will be extended to taxpayers who file Income Tax Self-Assessment tax returns for business or property income over £10,000 annually.
What is Making Tax Digital (MTD)?
HMRC first introduced Making Tax Digital with the aim of businesses to complete digital tax records and returns using accounting software as keeping paper records will not meet the tax legislation requirements. The eventual aim is to go completely paperless to make it easier for businesses to complete their tax returns.
The first phase of MTD was introduced in April 2019 (for VAT purposes only) when businesses with a turnover above the VAT threshold of £85,000 were told to keep their records digitally and provide their VAT return information to HMRC using MTD compatible software.
How long is the new Making Tax Digital extension?
MTD will be extended from April 2022 to include all VAT registered businesses with turnover below the VAT threshold, and from April 2023, it will apply to taxpayers who file income tax self-assessment tax returns for business or property income over £10,000 annually.
The decision has been made to extend the programme to provide a longer lead-in time to allow businesses, landlords and agents to plan for becoming paperless, plus giving software providers a long enough notice to bring a range of new products to market. This also includes free software for businesses with the simplest taxi affairs.
Currently, businesses above the VAT threshold of £85,000 are covered by MTD meaning that they are required to keep digital records and provide VAT returns through software. Since the first phase of MTD was created in 2019, more than 1.4m businesses have joined the programme, submitting over 6m returns. You can view HMRC communications pack on Making Tax Digital here.
We’re forward-thinking accountants here at Kara, and love keeping up with the latest financial technology. We use a range of accounting software to take away the burden of financial services for your business, such as online bookkeeping. Find out more here.