MTD (Making Tax Digital)
Since April 2019, VAT Registered businesses with a taxable turnover above the VAT Threshold will need to submit VAT Returns online.
MTD (Making Tax Digital)
In the context of the UK, MTD stands for Making Tax Digital. It is an initiative introduced by HM Revenue and Customs (HMRC) to modernize the UK tax system by requiring businesses and individuals to keep digital records and submit tax returns online.Â
Under the Making Tax Digital program, businesses above the VAT threshold (currently £85,000) are required to keep digital records of their income and expenses and use MTD-compatible software to submit their VAT returns online. This means that manual record-keeping and paper-based submissions are no longer accepted.Â
The implementation of Making Tax Digital for other taxes, such as income tax and corporation tax, was planned to be rolled out in subsequent phases, but as of my knowledge cutoff in September 2021, it had not yet been fully implemented. It’s possible that there have been updates or changes to the implementation timeline since then, so it’s a good idea to consult the HMRC website or a tax professional for the most up-to-date information on Making Tax Digital in the UK.Â
Benefits for a sole trader
There are many benefits of being a sole trader. Start-up costs are very low and the initial setup is simpler and a lot quicker. You are your own boss and are entitled to make all the business decisions yourself and retain all the profits the business makes.
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Process MTD
The process of Making Tax Digital (MTD) in the UK involves several steps. Here is a general outline of the process:Â
Register for MTD
If you are a business that is required to comply with MTD, you need to register for the program. This can be done through the HMRC website.
Use MTD-compatible software
To comply with MTD, you need to maintain your accounting records digitally using compatible software. This software should be capable of submitting your VAT returns to HMRC electronically. Ensure that you choose software that is listed as compatible with MTD.Â
Submit VAT returns using compatible software
With MTD, you need to submit your VAT returns using the compatible software you have chosen. This involves creating and validating the VAT return within the software and then electronically submitting it to HMRC.Â
Maintain digital links
If you use multiple software applications or spreadsheets to maintain your records, you must ensure that they are digitally linked. This means that the data flows seamlessly between the different software systems without manual intervention.Â
Keep records for at least six years
HMRC requires businesses to keep digital records for at least six years. Make sure you have a system in place to store and back up your digital records securely.Â