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In line with the government’s plans to digitalise the tax industry, from 1 November 2022, VAT registered businesses must ensure that they are using MTD compatible software for their VAT returns. Should a business fail to comply with the new rules, they may be liable to pay penalties and debarments from HMRC.

So, what’s the latest changes and what must you be doing as an employer from November 1 2022?

What is Making Tax Digital (MTD)?

MTD is a government-backed initiative that acts as a crucial building block for the 10-year strategy to build a ‘trusted, modern tax administration system’, that better supports taxpayers.

A central part of the scheme will require taxpayers to use third-party software to keep digital records of their taxes; ultimately providing HMRC with details of revenue throughout the tax year, rather than depending on an annual tax return. By making the shift to online tax management, the scheme is set to provide simpler and more efficient support to taxpayers, and through the utilisation of the online platform, will allow increased interaction and guidance in comparison to standard paper tax returns.

Originally announced at the Budget 2015; the launch of MTD has been long anticipated by UK businesses. Executed gradually over several stages, the first element of implementation in April 2019 instructed VAT registered businesses with a turnover above £85,000 to keep digital tax records and provide tax return information to HMRC through third-party software. Just 15 months later, the government published their vision for a digital future of tax administration in the UK, and the launch of MTD is set to play a crucial part in delivering this.

What’s the latest update?

In February 2022, the government extended the MTD Income Tax Self-Assessment (ITSA) initiative to be introduced in April 2024, instead of April 2023 with the aim to provide businesses with more time to prepare for the changes and allow HMRC to ensure that the necessary checks and processes are carried out to deliver the most seamless release.

However, from 1 April 2022, it was announced that all VAT-registered businesses are required to comply with MTD requirements and use compatible software to both keep VAT records and file VAT returns.

Following this announcement, from November 1 2022, VAT-registered businesses will not be able to use their existing VAT online account to submit VAT returns. This replaces previous guidance which detailed that businesses are still able to file VAT returns through their VAT online account.

As an employer, it’s therefore important that you sign up to MTD if you haven’t done so already, and use the correct compatible software to submit your returns. Failing to do so may leave your business liable to a default subcharge or late submission penalty with the possibility of interest from 1 January 2023. By visiting the GOV.UK website, you can view the different types of MTD software available and check the permissions in the software.

You will only be exempt from the changes if you are subject to an insolvency procedure or if HMRC has agreed otherwise. If your business is unable to gain access to a computer, software or the internet, you can apply for an exemption which can be completed on the GOV.UK website.

Who will be affected?

The introduction of the Making Tax Digital initiative is set to impact sole traders, landlords and partnerships with business and/or property income above the £10,000 threshold. The implementation will apply to businesses, self-employed individuals, and landlords who have profits chargeable to Income Tax and pay Class 4 National Insurance Contributions (NICs).

What are the benefits of Making Tax Digital?

There is growing evidence from taxpayers already operating Making Tax Digital VAT that demonstrate a whole range of benefits; some of which include:

  • More effective and efficient tax systems, with less administrative heavy tasks
  • Easier way of preparing and submitting tax returns
  • Increased confidence in managing tax affairs and using technology
  • Increased business productivity as software provides an up-to-date picture of business’ finances and may also provide additional functionality to integrate record keeping with other business processes
  • Increased access to support in comparison to standard paper returns
  • Opportunities for businesses to reduce tax-related admin, making room for investment into more valuable activities
  • Reduced chance of error when preparing and submitting a tax return
  • Real-time tax information

For further information on Making Tax Digital and it’s benefits for business owners, you can visit EasyBooks or GOV.UK.

How can we support you?

Although we are unable to submit tax returns on your behalf, our team of experts are well-equipped to offer guidance if you find yourself unsure on how the Making Tax Digital scheme will impact you.

Simply, drop us a message on WhatsApp and one of our friendly team can either help there and then, or give you a call at a time convenient to you!

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