Making Tax Digital (MTD) is a new system for submitting tax returns to HMRC. It will be phased in over the next five years and will affect businesses with a turnover of more than £10 million, as well as smaller businesses.
If you are a business with a turnover of more than £10 million, and you have to pay VAT, then you will have to submit your tax returns digitally. HMRC will send you a letter telling you when this is due to happen.
The MTD will apply to all businesses and self-employed individuals in the UK, regardless of size or sector. Businesses must prepare their own tax returns, or have them prepared by someone else on their behalf (for example, an accountant).
In order for the MTD to work effectively and efficiently, it is imperative that all businesses keep digital records of their transactions from 1 April 2020 onwards so that HMRC can easily access them when needed. This means that all businesses need to ensure they have in place a robust accounting system which allows them to collect, store and process appropriate financial data; they must also ensure they are also keeping digital records of their transactions for a minimum of 5 years.
The government has announced that Making Tax Digital will be rolled out in stages. The first stage begins on April 2020, while the final stage will take effect in April 2022. It means that from this date onwards, all businesses and self-employed people will have to use MTD for their tax returns, instead of the current system.
VAT-registered businesses with an annual turnover of more than £85,000 are required to use the VAT MOSS service, which allows the business to publish all their UK sales on an online portal and then send HMRC monthly reports detailing those sales.
They must also keep records for 5 years after they have submitted their returns. These records should be readily accessible so that they can be produced when asked by HMRC at any time during this period.
Make sure that the accounting software package(s) you choose has all the necessary features and functionality needed by businesses operating in today's complex tax environment, these should include VAT returns and reporting requirements under HMRC's Making Tax Digital initiative. They should also have enough flexibility built into them, so they can grow along with your business, as well as provide ongoing support throughout its lifecycle.
However, most importantly, take care of yourself! Getting through tax season is not easy.
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This is my first time being self-employed and I found the idea of being responsible for my own tax affairs a daunting experience.
Nigel, during our very first meeting, put my mind at ease with regards to tax payments and offered advice on the benefits of being VAT registered which I was previously unaware of. Nigel also advised and assisted with the transfer of my business into a limited company and took care of all the necessary paperwork required.
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