A Simple Guide to Making Tax Digital (MTD)

In 2019 HM Revenue and Customs (HMRC) introduced Making Tax Digital (MTD). An initiative in order to help simplify company tax for independent professionals. From 2022 it will be introduced to more self-employed and limited company contractors and consultants. Let’s take a look at what this means for you.

What is Making Tax Digital (MTD)?

In a nutshell, MTD is a scheme introduced by HMRC to get independent professionals using compatible software to manage their tax affairs. Compatible software is in the form of a program (or programs) that you’ll use to keep digital records, and the information, and returns will automatically be sent to HMRC. The idea being that it will ensure it is easier for businesses to get their tax correct, not least, it will result in fewer errors in your accounts and as a consequence you’ll have the ability to better plan financially.

The software generates summaries which will tell you how much tax you owe and this will enable you to budget better for your upcoming tax bill. Having accurate figures so you know exactly what you’re dealing with is invaluable when running a business.

Who is impacted by MTD and when?

2019

MTD was introduced to VAT-registered businesses only with a taxable turnover above £85,000. Those below the threshold could sign up to the scheme voluntarily.

2022

From 1st April, all VAT registered businesses will have to follow the MTD rules, regardless of turnover (i.e. including those with a turnover less than £85,000) for their first return starting on, or after, April 2022.

2024

From 6^th April MTD for Income Tax will replace the current system of annual Self Assessment tax returns for those who are self-employed, and landlords, who have an income from their business or properties exceeding £10,000 to follow the MTD rules.

2025

In April 2025, MTD for Income Tax Self Assessment will be introduced for partnerships with individual partners.

2026 Onwards

HMRC are planning to introduce MTD for Corporation Tax.

What software is best suited for a Contractor or Freelancer?

Whether you are required to register, or voluntarily register, for MTD you will need to ensure that your records are compatible with HMRC. The information you’ll receive from HMRC will be sent via an Application Programming Interface (API). So even if you currently use an Excel spreadsheet for your records, you’ll need to invest in an API-enabled bridging software which will mean you can share information with them.

An easier method would be to utilise an approved software system. There are many systems in the market now compatible with this scheme, but for our clients, we recommend FreeAgent. It’s our software of choice because, in our experience, it’s the best contractor accountancy software out there and is completely HMRC approved.

The beauty of FreeAgent is that you have 24/7 visibility of your accounts and it connects with your bank account automatically. What’s more it’s fully mobile compatible and incredibly straightforward to use, making the move over to MTD very simple.

Compatible software takes the data from your business activity and produces a real time, accurate picture of your tax. Once compiled (as part of the process you’ll be prompted for any missing relevant information and possible mistakes will be highlighted) the data can be submitted directly to HMRC via either computer or smartphone.

How do you register for MTD?

Once you have compatible software, you will need to physically sign up to MTD. To do that you’ll require your Government Gateway ID and password or if you don’t already have one you’ll need to create one. Following that there is some basic information you’ll need to input:

• Your business name
• Your email address
• Your National Insurance number
• Your business start date and registered address
• The dates of your accounting period
• Your accounting type e.g. standard or cash accounting.

If you do your own accounts, you’ll need to register yourself, however, if you use an accountant they can do this for you. Here at Integro Accounting we manage all of this for our clients and will act as your agent and register you for MTD using your VAT number. This will then be authorised by HMRC and once approved, we’ll confirm MTD on your software portal. For example, with FreeAgent, we will grant access to this feature and manage it all for you along with completing your VAT returns and sending them for you. In other words, we can give you complete peace of mind when it comes to keeping on top of your accounts.

If you want to understand more about MTD and how you can start investigating the best compatible software for you, our fully qualified accountants are on hand to help. They can guide you on what will work best for you and your business, simply call 0207 096 2659 or email christian@integroaccounting.com.

Here at Integro Accounting we are one of FreeAgent’s platinum partners and include their award winning software as part of our fixed fee service. For more information on FreeAgent click here.