Getting Your Practice Ready For MTD

Making Tax Digital will offer both significant administrative savings and allow HMRC to police the tax system more effectively.

What is happening now?

Businesses with taxable supplies in excess of £85,000 within a 12 month period have been required to join MTD for VAT since 1st April 2019. This means that for businesses now registering as a result of meeting the VAT threshold, they must join MTD immediately. Digital links for VAT is now live as well, having been deferred until 1st April 2021, meaning that posting manual journal entries between different software packages is no longer permitted, and moving VAT related data between two packages must be done using an export/import function.

What next?

Now that MTD for VAT is established, from April 2022 all VAT registered businesses must join MTD for their first VAT return after that date unless their business is digitally excluded which will need to be approved by HMRC for exemption to be granted.

Exemptions include: 

  • It is not reasonably practicable for you to use digital tools to keep your business records or submit your VAT Returns because of age, disability, remoteness of location or for any other reason
  • You or your business are subject to an insolvency procedure
  • Your business is run entirely by practicing members of a religious society or other whose beliefs are incompatible with using electronic communications or keeping electronic records.

In the summer of 2020, it was announced that the MTD roll out would move to income tax from 6th April 2023 meaning that all landlords with gross income in excess of £10,000 would be mandated into the new rules from that date. If an individual has both trading income and rental income the amounts are added together to test against the £10,000 limit.

Landlords affected by MTD will remain in self-assessment until 2022/23 but will need to keep digital records from 6th April 2023.

Detailed requirements and digital records

The original primary legislation enabling MTD was in the Finance (No 2) Act 2017 however, there is no detail about the exact requirements of the regime, all of which will be set out in Regulations.

Affected businesses and landlords will be required to keep records of all business transactions in digital form however, paper copies of receipts are acceptable. There is also an implication in the rules that records must be kept up to date.

Timeline to implementation:

  • Summer 2021 – Regulations specifying the detailed requirements will be finalised and published.
  • During 2021 – Software providers will start to advise their customers that they can join the pilot for MTD.
  • April 2022 – The full pilot will be open to most businesses and landlords that will be mandated from April 2023.
  • 6th April 2023 – All businesses with a 5th April year end, and all landlords who meet the gross income requirement will be required to keep digital records.
  • 5th August 2023 – The expected latest date for filing the first quarterly submission under the MTD rules.
  • 5th November 2023 – Second quarterly submission for landlords and 5th April year ends.
  • 31st January 2024 – Accounts (pre MTD) and self-assessment returns will be due for all clients.
  • 5th February 2024 – Third quarterly submission for landlords and 5th April year ends.
  • 1st April 2024 – The last remaining businesses – those with a 31st March year end will be required to keep digital records from this date.
  • 5th May 2024 – Fourth quarterly submission will be due for businesses with a 31st March year end.
  • 31st July 2024 – The first quarterly submission will be due for businesses with a 31st March year end.
  • 31st January 2025 – Self-assessment returns for all clients except landlords and 5th April year ends.
  • 31st January 2025 – New MTD finalisation submission due for landlords and 5th April year ends.
  • 31st January 2025 – Third quarterly submission for 31st March year ends.

What is the likely minimum detail?
HMRC expects businesses to keep their records as near to real time as possible, however the requirement for quarterly updates means that this will be at a minimum quarterly. The exact content of the digital records will be determined by secondary legislation.

Businesses are likely to have to analyse their transactions in accordance with the categories on the current self-assessment return:

  • Turnover
  • Phone, fax, stationery, and other office costs
  • Other business income
  • Costs or goods bought for resale or goods used
  • Advertising and business entertainment costs
  • Construction industry – payments to subcontractors
  • Interest on bank and other loans
  • Wages, salaries, and other staff costs
  • Bank, credit card and other financial charges
  • Irrecoverable debts written off
  • Car, van and travel expenses
  • Rent, rates, power and insurance costs
  • Accountancy, legal and other professional fees
  • Depreciation and loss/profit on sale of assets
  • Repair and renewals of property and equipment
  • Other business expenses

Landlords are likely to be required to keep their records in line with the current tax return entries:

  • Income, analysed between rents, premiums and reverse premiums
  • Rates, insurance, rent and ground rent
  • Property repairs and maintenance
  • Loan interest and other financial costs
  • Legal, management and other professional fees
  • Costs of services provided, including wages
  • Other allowable property expenses

Bank feed data

Due to the open banking rules all banks are required to give access to data to third parties. Setting up a bank feed ensures that data is brought into the accounting records regularly. The rules associated with bank transactions allows you to reduce the amount of operator intervention in analysis and has the potential to reduce errors.

If you require any further information then please do not hesitate in contacting us. Though your client manager will be in contact in due course once elements have been published.