Making Tax Digital 2021 – What to expect
Making Tax Digital (MTD) is a government initiative designed to help businesses and individuals declare their tax to HMRC digitally. The scheme is expected to bring accounting into the 21st century, with HMRC claiming it will “become one of the most digitally advanced tax administrations in the world.” here we review what to expect for Making Tax Digital 2021.
Whilst part of Making Tax Digital was pushed back 12 months into 2021 due to the Covid-19 pandemic, it is very much still a priority of the Government. In July 2020, the government published a ten-year vision for tax administration in the UK, central to this being a fully digital tax system, closer aligned to real-time.
In the Chancellors’ Spending Review of November 2020, £146 million was provided to extend the roll-out and operation of the MTD programme for VAT for businesses below the threshold, landlords with income over £10,000 and income tax self assessments.
Here is what 2021 (and beyond) has in store for MTD and why you should act now to prepare your business.
Has Making Tax Digital been delayed?
When coronavirus hit the UK in March, HMRC made a prompt decision to push back the deadline from April 2020 to April 2021. IR35 reforms for the private sector were also delayed until 6 April 2021 to help protect UK businesses during this challenging time.
This Making Tax Digital delay means any businesses who were expected to put digital links in place for April 2020 will now need these to be in place by April 2021.
In confirming the delay, HMRC reportedly said that it understands the impact COVID-19 is creating and it is committed to helping all those businesses facing unprecedented challenges in every way possible.
The outcome of this is that HMRC has provided more time for all MTD businesses to put digital links in place between all parts of their functional compatible software. These businesses now have until their first VAT return period starting on or after 1 April 2021 to put these links into place.
With this extended deadline brings a greater opportunity for many businesses to prepare. With the deadline being four months away, it is imperative that businesses act now to ensure they are fully prepared to meet new Making Tax Digital rules.
What is your business required to do in 2021 to comply with MTD?
Making Tax Digital for VAT
Currently, only VAT-registered businesses with a taxable turnover above the VAT threshold
(£85,000) are required to follow Making Tax Digital rules. However, all VAT-registered businesses will be expected to file their tax returns digitally from April 2022. It is estimated that this will affect another one million businesses.
Starting April 2021 all VAT registered traders will have to utilise MTD compatible software to file VAT returns for VAT periods starting on or after 1 April 2022. Additionally, they are required to keep the VAT record in digital form. Each of these scenarios is subject to exceptions.
Making Tax Digital for Corporation Tax
Following several years of waiting, the Government finally published a long awaiting consultation on MTD for Corporation Tax on 12 November 2020.
Whilst there is no definite timeline for MTD for Corporation Tax being rolled out, giving the current push and investment in resources to roll out MTD further, it is likely it will remain a priority on the Government’s radar.
A new date for your diary: Making Tax Digital 2024
MTD for Corporation Tax will commence a voluntary pilot in April 2024, with the mandate expected to follow from 2026. Given the current push and investment in resources to roll out MTD further, it is likely it will remain a priority on the Government’s radar.
Making Tax Digital for Income Tax
MTD was switched from an initial focus on Income Tax to VAT as it was perceived that this would be an easier transformation.
The Making Tax Digital requirement for income tax will apply to those receiving income from self-employment or property and will also apply to partnerships and trusts. This is scheduled to take effect from April 2023. There will be exemptions to this requirement, including those with an annual turnover/gross income below an expected threshold of £10,000 (TBC)
In all circumstances, acting now, ahead of time is recommended. Preparing for Making Tax Digital now could not only make it easier to file your taxes, but it could also help to prevent any late payment fines.
Our experienced accounting team is here to help you make the switch and register for MTD.
We can help you get to grips with Making Tax Digital annual accounting
As Xero Certified Advisors and Gold Partners, our Making Tax Digital Accountants are well-equipped to help you transition to the world of digital tax returns. We can help you get to grips with all aspects of filing your tax digitally, from understanding the new regulations to implementing MTD-approved software.
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Further 2021 tax resources: