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Making Tax Digital to be Extended from April 2022

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Making Tax Digital to be extended from April 2022

A couple of days ago there was an announcement that was hidden away from most taxpayers but the implications of which will have a major effect on many.

After delay after delay caused by Brexit and now Coronavirus the government have now announced they will be extending the making tax digital (MTD) programme from April 2022.

MTD for VAT

Currently the MTD regime is compulsory for VAT registered traders who are required to be VAT registered if their turnover is in excess of the threshold of £85,000. However an estimated one million VAT registered businesses with lower annual turnover are not required to enter the MTD regime as they are automatically exempt on the basis of their low VATable sales level. 

This will all change from 2022 and all VAT registered traders, irrespective of their turnover, will have to use MTD compatible software to file their VAT returns with effect for VAT periods starting on and after 1 April 2022. They will also be required to keep the VAT records in a digital format.

MTD for income tax

This was initially earmarked for the first roll-out but was delayed in favour of forcing VAT registered businesses as the “pilot”. Now there is a plan in place for small self-employed businesses and unincorporated landlords to commence quarterly reporting through MTD software and to keep digital records with effect from April 2023. It is thought this will affect around four million unincorporated businesses and landlords with annual turnover exceeding £10,000 per year.

Having said this the government has stated that they will learn lessons from the MTD for VAT roll-out so there may be some tweaks to this as we approach commencement.

MTD for corporation tax

It has been nearly 4 years since MTD was first announced and at the time there was no suggestion that Limited Companies would be drawn in straight away however the government have announced that they will consult on this in the autumn and it cannot be ruled out that the smaller incorporated bodies will be drawn into the new regime sooner rather than later.

Collecting tax post Covid 19

The government have also announced that they wish to look at the way tax is currently collected and in particular if payments can be made earlier on a more “real time” basis to to align more closely with the reporting of tax information. When MTD was first mooted it was suggested and still remains the case that MTD could be introduced without amending when tax payments are made but it was always a short leap to think that if you are reporting tax due on a quarterly basis then why not collect it as such with a balancing system at the year end.

HMRC says it wants to make it as easy as possible for people to pay the right amount of tax and make it harder for taxpayers to avoid paying tax. The government argues that using digital technologies, which permit HMRC to make interventions earlier, will prevent tax loss and reduce the tax gap, a gap that they are very anxious to close given the monies spent on Covid 19 support for business..

Improved administration

The next part of the announcement was around tax reform, something that is long overdue. The government will publish a call for evidence later in the year to help identify a range of reforms to include:

  • Obligations of taxpayers and HMRC
  • Penalties and sanctions for failing to comply with obligations
  • Taxpayers rights and safeguards
  • How taxpayers are identified and register with HMRC
  • How tax liabilities are identified amended and assessed.
  • The plan says “Taxpayers should be able to view their tax position and tell HMRC anything it needs to know through a single online account.” This implies that the personal tax account and business tax account will be merged.
Steady as she goes

The final part of the plan is to make sure that the change is not rushed and is done on a steady and reliable basis.

We shall see but make no mistake the Making Tax Digital changes are coming and no business will be able to avoid them. I for one have been advocating a move to digital record keeping for three years now and if you haven’t done so already now is the perfect time to get ahead of the curve and ready for whatever HMRC will throw at us.

Believe me, it is so much easier than many taxpayers think and I can support you with the transition every step of the way.

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