Making Tax Digital (MTD) for non-VAT Self Employed

Yesterday (21 July 2020), the government announced that non-VAT self employed individuals will be moved to the mandatory Making Tax Digital (MTD) system from 6 April 2023.

What is Making Tax Digital (MTD)?

Making Tax Digital (or MTD for short) is the term which HMRC are using to move all businesses in the UK towards a digital first system, allowing them to see how your business is performing through the year, and tax as appropriate.

This means that instead of just one ‘annual tax return’, you’ll be sending 4 additional returns through the year (one each quarter) as a ‘mini tax return’ to HMRC.

The returns will ask for your income and expenses, so that HMRC can tax appropriately. HMRC estimate that this could avoid a lot of errors with tax returns, saving around £8.5bn per year.

Details are currently limited, however we’ll keep you updated with any information through our website as always.

Questions and Answers…

When does this start from?

Your first quarterly return will take place during the 2023/2024 tax year

Will it affect me?

MTD currently applies to VAT Registered self employed individuals.

From April 2023, this will be extended to anyone receiving income over £10,000 from self employment activity.

Some exclusions (pensioners, and those with turnover under £10,000) apply.

How much will it cost?

HMRC estimate it will cost businesses around £280 to move to MTD, based on costs for submission software, computer equipment and memberships to keep track of their tax. Any expenses for the business of course can be claimed against your tax bill.

How many returns will there be?

There will be 4 quarterly returns and your standard annual return (this is subject to change)

Do I need to buy Xero / Quickbooks / Tax Software?

A lot of software companies are pushing advertisements around this, however the current VAT MTD system doesn’t actually require any of this – it just needs you to submit the figures to HMRC digitally, i.e. through a digital platform.

Does my Malgra Spreadsheet do this at the moment?

Your spreadsheet helps collate your business details and provides the key numbers needed for MTD. Currently, the system does not submit this to HMRC (as it’s not yet required!) but we’re looking at the next steps for the evolution of our spreadsheets.

Is there any good things about this?

In theory, your tax will be accurate as the information HMRC holds on you will be up to date every 3 months, instead of once per year. This will help avoid the situation at the end of the year where you may be due to pay a large tax amount, or have a repayment due.

As such, the system does allow for some flexibility around the tax system in the UK, and means things are a lot more accurate. For example, with the current Covid-19 Support Packages, the government was reliant on out of date information and didn’t have the latest information on your business. This would avoid scenarios like this.

In a wider picture, HMRC will be able to claim tax earlier from people – therefore putting money back into government services. They’ve also committed to more online services, including live chats with their team if you have any queries.

I’m a MalgraBooks Client – how does this affect me?

Your currently MalgraBooks service remains unaffected – however the deadlines for submitting information to our team will become mandatory at the end of each quarter.

Again, MTD doesn’t take affect until April 2023, therefore we’ll update clients before this system goes live.