Her Majesty’s Revenue & Customs (HMRC) are digitalising the way they collect taxes. The aim for this was to make collecting tax easier for both HMRC and the clients. It would help with the avoidance of errors such as transposition errors, as the information would come straight from the accounting software. The original plan from HMRC was that by 2020 all taxes will be administered via digital tax accounts straight from a digital accounting system. However, 2020 is just around the corner, and only one of the three taxes are currently digital. The three taxes that HMRC were aiming to digitalise by 2020 are:
- Value Added Tax (VAT)
- Income Tax
- Corporation Tax
MTD will affect businesses, self-employed professionals and landlords. If you currently submit a tax return to HMRC, then you will be affected by the MTD initiative.
MTD for VAT
This went live for all VAT periods starting on or after 1st April 2019, so for risual, our quarters are in line with the calendar year. Therefore, our first quarter for MTD would have been 01/04/2019 – 30/06/2019, meaning our first VAT return using MTD was due 7th August 2019 (1 month 7 days after the VAT quarter end). Before MTD for VAT, risual would log into HMRC and manually input our VAT figures for the quarter into each box, however, this now has to be completed through our accounting system, Microsoft Dynamics Business Central.
MTD for Income Tax
This was originally planned for April 2018; however, it was then deferred to April 2020, it has now been published that it will not become mandated until 2021 at the earliest.
Rather than fill out a self-assessment form online once a year after the tax year has ended, MTD will require quarterly updates throughout the year using digital software. This will then bring up an estimate as the year continues. At the end of the year, you will need to finalise your business income and expenses and then after the tax year ends, you can submit any personal reliefs etc.
MTD for Corporation Tax
This was originally going to be put in place in April 2020, however, nothing yet has been decided and no new date has been announced. It is thought that HMRC will work to digitalise one tax at a time, with Corporation Tax being the final one.