As a small business owner in the UK, staying on top of the constantly changing tax laws and regulations can be an overwhelming task. With the upcoming implementation of Making Tax Digital (MTD), many small businesses and SMEs are left feeling confused and uncertain about what these changes mean for their business. However, fear not. In this article, we will discuss the MTD thresholds and timelines, and provide you with some useful advice and tips to ensure you are on the right track.
What is Making Tax Digital?
In April 2019, the UK government introduced Making Tax Digital, a revolutionary change in the way businesses report their taxes. The aim of this initiative is to make the tax system more efficient and accurate, by requiring businesses to keep digital records and submit quarterly tax updates through MTD-compatible software. This will eventually replace the current filing system of paper tax returns and annual reporting.
MTD Thresholds
One of the biggest concerns for small businesses is whether or not they are required to comply with MTD. The good news is that the government has set out specific thresholds to determine which businesses are required to participate in MTD. These thresholds are based on your business turnover, and if you fall below them, you are exempt from MTD.
For VAT registered businesses, the threshold is £85,000. If your taxable turnover in the last 12 months was below this amount, you are not required to comply with MTD. However, if you are above this threshold, you must comply starting from your first VAT period that starts on or after April 1, 2019.
For income tax and corporation tax, the thresholds are £10,000 and £200,000 respectively. This means that if your annual business income is below £10,000 or your company’s annual profits are below £200,000, you are not required to comply with MTD for these taxes.
MTD Timelines
Now that we have discussed the thresholds, it is important to understand the timelines for MTD. The first stage of MTD was the introduction of digital record keeping for VAT registered businesses from April 2019. However, the government has recently announced that there will be a one-year deferral for MTD for VAT for certain businesses.
For those businesses whose annual taxable turnover is below £85,000, the MTD for VAT requirements have been deferred until April 2022. This means that if you fall under this category, you can continue to submit your VAT returns using the current system until April 2022. For businesses above the threshold, the MTD for VAT requirements remain the same, and you must comply starting from your first VAT period after April 1, 2019.
For income tax and corporation tax, the proposed timelines for MTD are as follows:
– April 2023: Quarterly updates for income tax for sole traders with an annual business income over £10,000
– April 2022: Quarterly updates for income tax for partnerships, trusts and landlords with an annual business income over £10,000
– April 2022: Quarterly updates for corporation tax for companies with annual profits over £200,000
Tips for small businesses and SMEs
As the MTD deadlines approach, it is crucial for small businesses and SMEs to start preparing and familiarising themselves with digital record keeping. Here are some tips to help you stay on top of this change:
1. Get MTD-compatible software
The first step to comply with MTD is to have the right software in place. Make sure you invest in MTD-compatible software that is suitable for your business needs and will help you keep digital records and submit tax updates.
2. Keep organised and accurate records
Having organised and accurate records is essential for any business, and it becomes even more crucial with the implementation of MTD. This will not only make it easier for you to stay compliant but will also help you better understand your business finances and make informed decisions.
3. Seek professional advice
If you still feel confused or uncertain about MTD, it is always a good idea to seek professional advice. A tax advisor or accountant can help guide you through the process and ensure you are compliant with MTD.
In conclusion, although the implementation of MTD may seem daunting, it is a positive step towards a more efficient and accurate tax system. By understanding the thresholds and timelines, and following our tips, small businesses and SMEs can successfully navigate this change. So,
