Plans to extend the Making Tax Digital (MTD) system have been announced by the government. The first steps were taken in 2019 when VAT-paying businesses had to ‘go digital’.
This blog post covers:
- What’s happening now with Making Tax Digital?
- What are the benefits?
- MTD software
- What’s happening next?
Since 1 April 2019, salons and barbershops who are above the VAT threshold or use the VAT Flat Rate Scheme must use the Making Tax Digital (MTD) system to file their VAT returns. This means:
- Keeping digital (electronic) VAT records.
- Filing VAT returns using MTD-compatible software.
The deadlines for sending VAT returns and making payments remained the same, including monthly, quarterly and annual VAT returns.
By keeping up-to-date digital records in real time you will be less likely to lose receipts. Digital records can also reduce the risk of errors due to lost or incorrectly recorded invoices. Over time, nudges and prompts are being introduced into the software to help eliminate common errors.
Digital record keeping also reduces the risk of unwelcome and costly HMRC compliance interventions and will help you manage your cash flow more effectively.
NHBF Members benefit from up to £50,000 legal cover (Member pays first £2,000) for tax, VAT and PAYE investigations. Find out more.
Under Making Tax Digital you must use software that can:
- Keep your tax information in the digital format required by Making Tax Digital.
- Prepare your return based on this information.
- Communicate with HMRC by sending and receiving files via its Application Programming Interface (API) platform.
Read our blog post to find out more about what’s happened so far with VAT and Making Tax Digital.
This guide will help you understand the basics of financial management for your business including tax, VAT, accounting and record keeping. It’s available to NHBF Members only. Not yet a Member? Join today.
The government’s long-term aim over the next decade is to introduce a fully digital tax system. It has now published a roadmap for Making Tax Digital which sets out the next steps that will be taken.
Making Tax Digital will eventually be extended to:
- VAT-registered businesses with a turnover below the current VAT threshold from April 2022 (30% of these businesses have already joined voluntarily).
- Income Tax Self-Assessment for businesses with an income over £10,000 from April 2023.
Business who come under these categories do not have to take any action yet. The government will be carrying out pilot studies and consultations on its MTD plans.
Sign up voluntarily
- Businesses with a turnover below the current threshold can voluntarily sign up for Making Tax Digital. Find out more.
- You can voluntarily sign up to Making Tax Digital for Income Tax. Find out more.
- Salons and barbershops who are above the VAT threshold or use the VAT Flat Rate Scheme must use the Making Tax Digital (MTD) system to file their VAT returns.
- The MTD scheme is to be extended from 2022.
- Businesses that will be affected do not have to take any action yet.
- You can sign up voluntarily if you wish.
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