As a small business owner in the UK, it’s important to stay on top of changes and updates that may affect your business. One such change that has been causing confusion and concern among small businesses and SMEs is the upcoming Making Tax Digital (MTD) initiative. In this article, we’ll break down the MTD thresholds and timelines to help you understand what it means for your business and ensure you’re on the right track.
Firstly, what is Making Tax Digital? MTD is a government initiative that aims to make the tax system more efficient, effective, and easier for businesses and individuals to manage. It requires businesses to keep digital records and submit their tax returns using compatible software. This means the end of manual record-keeping and paper tax returns, making the process more streamlined and less prone to errors.
So, what are the thresholds for MTD? From April 2019, businesses with a turnover above the VAT threshold of £85,000 will be required to keep digital records and submit their VAT returns using MTD-compatible software. This applies to all VAT-registered businesses, including sole traders, partnerships, limited companies, and charities. If your business is below the VAT threshold, you can choose to join MTD voluntarily.
For businesses with a turnover below the VAT threshold, the MTD timeline is a bit different. The government has announced that MTD for income tax will be delayed until April 2023, giving small businesses and self-employed individuals more time to prepare. However, if your business is VAT-registered and has a turnover below the threshold, you will still need to comply with MTD for VAT from April 2019.
It’s important to note that the MTD thresholds and timelines may change in the future, so it’s crucial to stay updated and informed. The government has stated that they will not widen the scope of MTD beyond VAT before the system has been shown to work well, and not before April 2020 at the earliest. This means that businesses with a turnover below the VAT threshold will not be required to keep digital records or submit their tax returns using MTD-compatible software until at least 2020.
Now that you understand the MTD thresholds and timelines, what do you need to do to comply? The first step is to ensure that you have compatible software in place. This can be in the form of accounting software, spreadsheets, or apps that are able to connect to HMRC’s systems. You can check if your software is compatible by visiting HMRC’s website or contacting your software provider.
Next, you need to start keeping digital records of your business income and expenses. This means recording all transactions digitally, either by manually entering them into your software or by using a compatible app that can automatically record and categorize your transactions. It’s important to note that you must keep digital records for all your business income and expenses, not just those that are subject to VAT.
Once you have your digital records in place, you will need to submit your VAT returns using MTD-compatible software. This can be done through your software or through HMRC’s online portal. It’s crucial to ensure that your software is set up correctly and that you are submitting your returns on time to avoid any penalties.
In conclusion, the MTD thresholds and timelines may seem confusing, but it’s important to understand and comply with them to avoid any penalties or fines. Make sure to stay updated on any changes and ensure that you have compatible software in place. With MTD, the tax process will become more efficient and less time-consuming, allowing you to focus on growing your business. Embrace the change and see how it can benefit your business in the long run.