Making Tax Digital advice from Wisbech accountant
Here is the fortnightly Barwell's Banter column, written by Nickie Barwell of Barwell Accountants in Wisbech...
Making Tax Digital (MTD)was introduced by HMRC to digitalise the UK tax system and will involve all taxpayers reporting their income and expenses through a digital platform on a more regular basis.
Maintaining paper records will cease to meet the tax legislation requirements.Instead, records must be kept digitally and reported to HMRC using MTD compatible software.
Timeline for MTD
MTD VAT started back in April 2019 and was mandatory for all VAT-registered businesses with a taxable turnover above the VAT threshold.
From April 2022 MTD VAT is compulsory for all VAT-registered businesses
From April 2024 MTD ITSA (Making Tax Digital Income Tax Self-Assessment) will be mandatory for the self-employed and landlords with business or property income in excess of £10,000
From April 2025 MTD ITSA will be compulsory for partnerships (excluding Limited Liability Partnerships) with a turnover greater than £10,000.
MTD corporation Tax will not start until April 2026 at the earliest.
If you have not previously used a software package but would like to consider one, there are many user-friendly options available including Xero, Sage and Quickbooks.
These packages have improved significantly over the last few years and have features such as automatic bank feeds that can save vast amounts of manual data input time and invoice uploading direct from your phone.
However, maintaining your records on a spreadsheet is also perfectly acceptable but would need an add on product to be purchased to enable you to file your figures with HMRC.
Penalties for not complying with MTD VAT
The new penalty systems apply to MTD VAT submissions as of January 1, 2023. Once MTD ITSA opens in April 2024, the new penalty system will also apply to this as well.
It is a points-based system whereby points accumulate with each late submission until a threshold is reached at which point a financial penalty is applied (£200).
Penalties for each tax (ie VAT and Income Tax) are listed separately.
Points will be wiped out after two years of full compliance.
Late payment penalties
Accordingly, HMRC are bringing in a new late payment penalty-based system.
This will be applied as follows:
- Up to 15 days after payment was due – no penalty;
- Late payment between 15 and 30 days – 50% of HMRC interest rate charge;
- Late payment after 30 days – 100% of HMRC interest rate charge along with daily interest charge.