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Category: Making Tax Digital

MTD for corporation tax

MTD for corporation tax

The Government would like to hear your views on proposals for a new process for keeping records for corporation tax purposes and reporting tax information to HMRC, known as Making Tax Digital (MTD). Your comments will help ensure that the design makes it as easy as possible for smaller businesses to comply when the rules are introduced.

The consultation closes at 11.45pm on 5 March 2021.

March 2, 2021

Making Tax Digital – the next steps

Making Tax Digital – the next steps

On 21 July, the Treasury published a report, Building a trusted, modern tax administration system, which sets out the Government’s vision of what they wish to achieve in the next ten years. The vision comprises three elements – policy, systems and law and practice. The ‘policy’ vision means a progressive extension of HMRC’s Making Tax Digital (MTD) work, the ‘systems’ vision means exploring the appropriate timing and frequency for the payment of the different taxes and the technology infrastructure needed to support this, and the ‘law and practice’ vision means reform of the tax administration framework itself.

Extension of MTD

HMRC’s MTD programme is currently in the initial roll-out phase for VAT. Since April 2019, MTD for VAT (MTDfV) is mandatory for most VAT-registered traders whose VAT-taxable turnover is above the VAT registration threshold of £85,000. As a result of a recent Government announcement, the next phase will be to extend the scope of MTD to the VAT registered with turnover below £85,000 from April 2022 and then to introduce MTD for Income Tax for the self-employed and unincorporated landlords from April 2023.

MTD for VAT

MTDfV is compulsory for VAT-registered traders whose taxable turnover is above the VAT registration threshold of £85,000. Traders within its scope must maintain digital VAT records and file digital returns using MTD-compliant software. However, the requirement for digital links to be in place between all parts of process has been delayed by one year as a result of the COVID-19 pandemic and will now apply from the first VAT return period starting on or after 1 April 2021. A digital link is simply the transfer or exchange of information between software programmes without the need for manual input of data.

MTD for Income Tax

Businesses and landlords with annual business income chargeable to Income Tax of more than £10,000 will need to comply with MTD for Income Tax from the start of their first accounting period that starts on or after 6 April 2023. This will necessitate the keeping of digital records and the use of software to send in-year updates of their income and expenditure to HMRC, at least quarterly, instead of filing annual post year end information when submitting a self-assessment tax return.

In addition to the four ‘in-year’ updates, at the end of the accounting period the taxpayer will need to finalise their business income by filing a final adjusting submission and making a declaration that it combined with the earlier submissions is correct. The final declaration will replace the current self-assessment return filed after the end of the tax year.

More information about MTD for income tax can be found on the Gov.uk website.

MTD for Corporation Tax

HMRC are to consult later in 2020 on the design of the MTD system for Corporation Tax to ensure that the MTD process evolves to include limited companies.

Help and advice

We can help you prepare for and comply with MTD.

July 30, 2020

Making Tax Digital – soft landing extension

Making Tax Digital – soft landing extension

One-year extension for MTDfV soft landing

In a welcome response to COVID-19, HMRC has extended its digital links ‘soft landing period’ by twelve months to April 2021.

HMRC Email

In a widely distributed email issued on 30 March 2020, HMRC stated:

“We understand that the impact of COVID-19 is creating extremely difficult times for all, and we are committed to helping in every way possible all those businesses facing unprecedented challenges.

Therefore, we are providing all MTD businesses with more time to put in place digital links between all parts of their functional compatible software. This means that all businesses now have until their first VAT return period starting on or after 1 April 2021 to put digital links in place.”

Digital journey

From April 2019, once those mandated to comply with VAT MTD have entered accounting data into their business’s accounting software, they have been required to transfer, recapture or modify that data using digital links. Effectively, once VAT data has been digitally captured the rest of its journey until the submission of a VAT return must be a digital journey, without manual intervention.

Soft landing

HMRC recognised that not all businesses would have digital links in place from day one and allowed a period of grace, the ‘soft landing period’. HMRC promised that, where businesses were trying to meet the statutory digital end to end journey during the ‘soft landing period’, the department would not impose penalties for non-compliance.

The effect of the ‘soft landing’ announcement meant that for the first year of mandation, businesses are not required to have digital links between software programs.

For most, MTD for VAT rules have applied from VAT period starting on or after 1 April 2019. Although there was a smaller group where mandation was deferred until the start of the first VAT return period on or after 1 October 2020.

What it means

All businesses mandated to comply with MTD for VAT now have until their first VAT return period, starting on or after 1 April 2021, to put digital links in place.

Given the coronavirus related troubles affecting practically all businesses in the UK, this extension to the ‘soft-landing period’ is another sensible easement that is to be much welcomed.

April 16, 2020