With MTD aiming to restructure the UK tax system, change is inevitable, and adapting to change is seldom easy. However, MTD is here to stay, so businesses and individuals need to understand it. In this article, we’ll share 5 things you should know about MTD in order to succeed with the new system.
1. Annual tax returns are a thing of the past
One of the main highlights of MTD is the end of filing annual returns. You’ll no longer have to submit 12 months’ worth of data at the end of every year. Instead, you submit reports to HRMC every quarter. Each time you file, you can see HMRC’s calculation of the tax you owe.
Though submitting records every 3 months means more deadlines to be met and a little more bookkeeping work, it will be beneficial for businesses. Keeping your business finances constantly updated means you are always aware of your tax liability. When you always know how much you owe, you can avoid unpleasant surprises at the end of the year.
2. You will need to use software, but you can keep your spreadsheets
MTD requires businesses to go digital. As a taxpayer, you’ll be required to use accounting software so you can upload your data to HMRC’s interface. The transition shouldn’t be difficult if you are already using a digital accounting system. But if you are still doing your accounting on paper, you will need to move to a digital system.
Though HMRC didn’t initially encourage the use of spreadsheets for financial record keeping, they have now approved the use of MTD compliant spreadsheets. As long as the spreadsheets can be integrated with an accounting app for the upload to HMRC, they can still be used.
3. The timeline
MTD began in 2018. HMRC had already launched a private pilot program for certain taxpayers who had voluntarily subscribed. Here is the timeline of the MTD rollout:
- April 2018: Pilot testing begins.
- April 2019: All businesses with turnover above the VAT threshold of £85,000 are required to keep digital records.
- April 2020: HMRC increases the scope of MTD to include sole traders and partners with income between £10,000 and £85,000.
- April 2021: End of soft landing period. Businesses are required to establish digital links using HMRC authorised accounting software or HMRC authorised API bridging solution.
- April 2022: All VAT registered businesses even if their taxable turnover is below the threshold of £85,000 are required to join MTD.
4. MTD doesn’t mean paying more taxes
Though MTD means more reporting deadlines, it doesn’t mean you have to pay more tax than usual. The new system just eliminates tax reporting errors. It’s possible that if you have been making errors in your tax returns, your tax bill might go up when those errors are corrected, but not because of any change in the tax laws. The new process will correct your errors so that you pay what you actually owe– which means that if you’ve been doing things right up to now, your tax bill won’t change at all.
5. Some taxpayers are exempt from MTD
Even though MTD offers a lot of benefits, HMRC has allowed some businesses and individuals to be exempt from it. Charities, community amateur sports clubs, and possibly insolvent businesses are all exempt from MTD.
HMRC has also recognized that some individuals cannot go digital due to their religion, age, disability or remote location.
MTD is going to involve some major changes to the way you file taxes, so it’s important to make sure you’re prepared for it. Find the right accounting software for your business and get used to keeping your financial records up to date. Getting comfortable with online accounting first will make your life much easier when it’s time to switch to online tax filing, come April 2022.
A word from Zoho Books
While MTD requires businesses to adapt to new methods and technologies, a robust accounting tool like Zoho Books, with its easy-to-use interface, can make this transition effortless. Maintain your financial records digitally, file VAT returns directly to HMRC, reconcile your bank statements, oversee projects, eliminate compliance worries, and more. With Zoho Books at hand, your growing business can get all the accounting capabilities it needs.
To make the transition into MTD smoother for small businesses, we are offering 50% off on top of your annual discount for the first 12 months of any Zoho Books’ paid plans. Sign up and the avail the offer right away.