Making Tax Digital

Making Tax Digital is here - are you ready?

Making Tax Digital (MTD) is here. The new government initiative means that your business will need to use compliant software to record and submit your finances to HMRC, or you’ll need an accountant to do it for you. Failing to do so could result in penalties from HMRC.

If you’d prefer to spend your time developing your business instead of sourcing new software, you can outsource your accounts to a reliable accounting company - like Mazuma - who already use MTD compliant software. The choice is yours, but either way you need to be aware of what Making Tax Digital is, whether the changes apply to your business, and how to make your business compliant with the changes.

Over the years, our clients have found that making the switch to services like ours has provided a fantastic opportunity not only to become compliant with legislation like MTD, but to overhaul their entire accounting processes. It has enabled them to get on with running their business, drastically easing the administrative burden of dealing with their accounts and taxes.

What actually is Making Tax Digital?

In 2015, HMRC laid out their plans to transform the tax system and move it fully online in an effort to make the tax system more accurate and easier to use. The initiative - named Making Tax Digital (MTD) - will digitise the way UK businesses, bookkeepers and accountants record and submit their taxes to HMRC.

Who is affected by Making Tax Digital?

MTD makes it compulsory for any VAT registered business above the £85,000 VAT threshold to store and submit their records digitally using HMRC approved software. The changes will soon also affect the way non-VAT registered entities submit their tax returns, potentially requiring them to file four times a year instead of once. That means that everyone with a turnover over £10,000 could soon be made to file with HMRC 4 times a year, including the self-employed and landlords!

If you aren’t VAT registered, or if you are and your business is nearing the £85,000 threshold, we’d strongly recommend you use MTD compliant software to record your finances. It’ll make things easier in the long run - trust us!

Why is Making Tax Digital happening?

HMRC says that its ambition is “to become one of the most digitally advanced tax administrations in the world”. It says that Making Tax Digital is ‘making fundamental changes to the way the tax system works’ – transforming tax administration so that it is:

  • more effective
  • more efficient
  • easier for taxpayers to get their tax right

The government also hopes the move will avoid the tax errors that result in more than £9 billion worth of revenue a year - yikes!

Not only were businesses not getting it right, but they were also thrust into uncertainty and worry when HMRC were forced to step in and resolve the miscalculations. That’s a lot of unnecessary stress that small business owners and freelancers would have to face!

HMRC recognised that the tax system needed to be easier. Enter Making Tax Digital! By enforcing MTD, the accuracy of tax payments will be improved and businesses will have clarity over their taxes throughout the year, which will help business owners get their tax bills right the first time round. You can read more about the benefits of Making Tax Digital over on our blog.

What’s the Making Tax Digital deadline?

Initially, the Making Tax Digital deadline was April 2019. By now, businesses who have a turnover above the VAT threshold of £85,000 should have adopted the digital approach of submitting tax to HMRC. If you haven’t made the move yet and your business sits within this bracket, you need to get a move on! If you’re not sure where to start, contact Mazuma today and we can help you become compliant with MTD.

However, because the UK government has been a little preoccupied with other priorities (including brexit and the COVID-19 pandemic), HMRC won’t be enforcing any penalties for failing to comply with MTD in 2020. In the 2019 spring statement, the UK government stated that they will “not be mandating MTD for any new taxes or businesses in 2020” and instead will be focussing on supporting businesses with the digital move. 

Following this, the government has recently announced that from April 2022, MTD rules will apply to all VAT-registered businesses with a taxable turnover below £85,000. From 6th April 2023, MTD will apply to self-employed businesses and landlords who file income tax self-assessment tax returns for business or property income over £10,000 annually.

This means that we’re looking at April 2022 being the earliest start date for income tax returns to be compliant with MTD. That said, it’s better to get sorted sooner rather than later. The last thing you want is to find yourself panicking at the last minute and trying to get everything sorted in a mad rush. Speak to Mazuma to find out how we can help with the digital switch and take the stress away.

How can Mazuma help?

The thought of moving your entire financial system to a new platform can be daunting - we get it. So if you’d prefer to spend your time developing your business and not worrying about how to set up an entirely new system, you can join the Mazuma gang and outsource your accounts to us. We provide a cheap accounting service for small and micro businesses, starting from just £28 per month plus VAT. The clock is ticking, so what are you waiting for?


How do I become compliant with Making Tax Digital?

To become compliant with MTD, you need to use government approved software to record your accounts and submit your finances to HMRC. You can refer to HMRC’s software search tool to find out more, or you can use a reliable accountant who already uses MTD compliant software - like Mazuma - to sort it all for you. We know what we’d rather do!

Will I have to file my VAT return more often?

At the moment, no. Making Tax Digital won’t change how often you need to submit your vat return and you still have to send the same information. MTD will simply change how you record your finances as well as how you submit your quarterly VAT return to the powers at be, HMRC

I’m not VAT registered - should I still be compliant with MTD?

If you’re not VAT registered, we would still recommend that you use HMRC compliant digital accountancy software - especially if your business is close to the VAT threshold! It’s better to be prepared for when your business does cross the threshold.

It’s also worth noting that for non-VAT registered entities, you’ll soon most likely be required to submit some sort of return up to four times a year instead of once. If it’s going to take up too much of your time, or if it’ll cost you too much money, you can use a reliable accountant - like Mazuma - for just £28 per month plus VAT to sort everything for you. No stress - we’ve got you covered.

Will Making Tax Digital affect sole traders?

Yes, if you are VAT registered and your turnover is above £85,000, then the rules apply - it doesn’t matter if you’re a sole trader or a limited company! And eventually it is likely to apply to all businesses with a turnover over £10,000 as well as most individuals who submit tax returns - such as the self employed and landlords. 

What are Digital Records and what do I have to keep?

Keeping digital records is a core aspect of Making Tax Digital. From now on you will need to keep your records in a digital format, stored on a computer or in the cloud. If you use handwritten invoices or receipts then you'll have to transfer that accounting information into MTD compliant software before you submit your returns (or get your accountant to do it for you!).

Keeping digital records doesn’t mean you don’t have to keep original paperwork. Quite the opposite, in fact. Original paperwork still needs to be stored as it could be required by HMRC in the event of a tax or VAT investigation. For most businesses, it means keeping paperwork for at least six years, though for many (VAT MOSS) it is a minimum of 10 years. HMRC will accept digital copies of receipts and invoices, so you could scan documents and store them to save on storage space in the office. But who has time for that?

Something we pride ourselves on at Mazuma is digitising records for our clients who don't want to use our app or their own MTD compliant software. If you prefer more traditional methods or are perhaps a little sceptical of a more digital future, you can send us all of your paperwork. We’ll scan and digitise it for you, saving you a lot of admin hassle and keeping you completely compliant with current and future MTD rules.

Will there be penalties for non-compliance?

In the first year of implementation HMRC has taken a "light tough" for penalties and allowed a soft landing period. In the 2019 Spring Statement the Chancellor said

“The government can confirm a light touch approach to penalties in the first year of implementation [of MTD]. Where businesses are doing their best to comply, no filing or record keeping penalties will be issued.”

They have also been allowing a "soft landing period" which is different to the light touch mentioned above and refers to the slight relaxing of the technical rules around digital links which are a central part of how the MTD legislation must perform within a business. Digital links refer to the technical way that data gets transferred to HMRC - it must be an automated process that creates a digital link between your business and HMRC (usually a piece of software or your accountant).

This more relaxed period is almost at an end though and HMRC are about to get a whole lot stricter when it comes to filing.

We cannot stress strongly enough that ultimately, you can be penalised for failing to either pay your VAT bill or for not trying hard enough to follow the new MTD rules - including digital links and keeping digital records.

Is Mazuma Making Tax Digital compliant?

Yes - we use software that is compliant with Making Tax Digital. If you don’t want the stress or worry or setting up a new digital system, contact us today to see how we can ensure that your accounts are compliant with MTD.

Do you need Making Tax Digital advice?

If you’re already working with Mazuma, pop us an email or give us a call on 0333 0143369 to speak to a member of our team.

If you’re not part of the Mazuma gang yet, you can still get in touch or get a free no-obligation quote to see how we can help you and your business get everything in order for MTD.

And for more information about MTD, click here to read our Making Tax Digital eBook.

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