Digital tax will soon be a requirement for businesses, self-employed individuals and most landlords in the UK, as per the Making Tax Digital (MTD) initiative announced by HMRC in 2019.

While the COVID-19 pandemic has pushed some of the Making Tax Digital (MTD) deadlines, allowing businesses more time to prepare, if you have not yet adopted digital accounting – now is the time. Going digital is not just a government requirement – it saves valuable business time and money. 

The Making Tax Digital Deadlines 

The first element of Making Tax Digital concerns digital VAT returns. Since the initiative was announced in April of 2019, businesses above the £85,000 VAT threshold have had to submit their quarterly VAT return digitally.

The next phase of Making Tax Digital will come into play from April of 2022. Digital VAT will be extended to all businesses charging VAT – even if their taxable turnover is below £85,000, impacting approximately 1.1 million small businesses.

From April 2024, Maxing Tax Digital will be extended from VAT to Income Tax. Originally scheduled for April of 2023, and pushed back due to the pandemic, anyone filing a self-assessment tax return for their business or property income over £10,000 a year must comply with the Making Tax Digital mandates.

From April 2025, Making Tax Digital will also become mandatory for general partnerships with a turnover in excess of £10,000.

HMRC has not made any announcement yet on Making Tax Digital for corporation tax. Deadlines and requirements will likely depend on how the VAT rollout proceeds once it is extended to all businesses registered for VAT. 

The Making Tax Digital Requirements 

Digital tax and accounting require digital records. Paper records will no longer meet the requirements for all the categories under the MTD legislation and timeline. This includes the self-employed and landlords earning more than £10,000 a year from 2024.

All small businesses charging VAT must also keep digital records from April of 2022.

Under current VAT Making Tax Digital directives the following information and documents must be kept in digital form:

• the business name, address and VAT registration number
• any VAT accounting schemes used by the business
• VAT records and VAT rate on all goods and services supplied by your business
• VAT record on all goods and services received by your business
• VAT return adjustment records
• time of supply and value of supply of all goods and services bought and sold
• records of reverse charge transactions
• records of daily gross takings if the business uses the retail scheme
• any items that VAT can be reclaimed on if the business uses the flat rate scheme
• records of total sales and VAT on those sales if the business trades in gold and makes use of the gold accounting scheme

Businesses must also keep digital copies of documents on transactions regarding volunteers for charity fundraising, third-party business and employee expenses in petty cash. 

How to make your tax and accounting digital 

Making your tax and accounting digital is a multistep process that requires a digital archive as well as a system and process for data integrity. Start with an inventory of all documents and communications you receive and which of them are in paper format. Paper copies should be scanned and archived, ideally by using OCR software that will later be able to read and find information in the digital copies.

Pulling data from multiple sources like your bank accounts, other payment systems, third-party integrations and more relies on a solid verification process to guarantee data accuracy and transparency.

In addition, submissions of quarterly updates and returns to HMRC must be made with one of the software programmes authorised by HMRC. You can find a full list here. At AcuAccounts we recommend either QuickBooks or Xero. The option to submit online via the HMRC portal will be withdrawn for the relevant categories as soon as MTD comes into effect.

Our team at AcuAccounts has long been at the forefront of recommending digital accounting and tax for all businesses independently from the MTD deadlines and requirements. Digital tax offers real-time insights into your business finance and allows for better financial decision making no matter the size of the business. Automations like automated invoices, direct debit setups and more will save time and money.

Do you have questions about making your tax and accounting digital? Any concerns on how to manage your taxes and business in 2022?

Have a look at our services and feel free to get in touch with us. You can book a consultation at info@acuaccounts.com or call us directly on 0203 907 9027.