Making Tax Digital (MTD) is a bold plan by HMRC which aims to get small businesses and the self-employed to complete their tax records and returns entirely online. Whereas the first phase of the MTD legislation saw only businesses with a taxable turnover of over £85,000 affected, the ‘second phase’, which will come into force on April 1, will see all VAT-registered businesses needing to register for Making Tax Digital. From this date, you will also need to keep your tax records digitally (for VAT purposes only) and submit your VAT return information to HMRC only through MTD-compatible software. HMRC’s eventual aim is for all tax filing to go completely paperless. From April 2024, Self-Assessment taxpayers will need to comply with Making Tax Digital for income tax. Currently, HMRC can levy a fine of up to £400 should your business fail to submit a return under the MTD requirements. Earlier this year, HMRC also announced that two new penalty regimes will be introduced in January 2023 – one for late filing and the other for late payment. In a similar system to speeding fines, businesses will receive a ‘point’ each time their submission deadline is missed. Once you have accrued a certain number of points, a £200 penalty will be applied. However, until this new system comes into place, VAT returns are still subject to the current default surcharge of £400. If you haven’t already, you’ll need to sign up to MTD on the Gov.uk website. This cannot be done less than five days before your accounts are due. If you haven’t registered already then the last day you’ll be able to sign up without a penalty is March 27th.

You will need:

• Your business email address
• Government Gateway user ID and password – if you do not have a user ID, you can create one when you use the service
• Your VAT registration number and latest VAT return
• Your National Insurance number if you’re a sole trader
• Your company registration number and Unique Taxpayer Reference if you’re a limited company or registered society
• Your Unique Taxpayer Reference and the postcode where you’re registered for Self-Assessment if you’re a general partnership
• Your Unique Taxpayer Reference, the postcode where you’re registered for Self-Assessment and your company’s registration number if you’re a limited partnership

Past performance is not a reliable guide to the future. The value of investments and the income from them can go down as well as up. The value of tax reliefs depend upon individual circumstances and tax rules may change. The FCA does not regulate tax advice. This newsletter is provided strictly for general consideration only and is based on our understanding of law and HM Revenue & Customs practice as of March 2022 and the contents of the Finance Bill. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned in connection with the content hereof and any such action or inaction. Professional advice is necessary for every case.