I am adding updates here on developments in the move towards Making Tax Digital (MTD)
MTD for VAT
From April 2022 all remaining VAT-registered businesses not already in MTD must move to using either a full accounting software package, or keeping bookkeeping records in a spreadsheet, and using ‘bridging software’ (less expensive than accounting packages) to transmit the final information to HMRC. The final information is no more than HMRC would normally receive (the full bookkeeping records are not transmitted – although HMRC will have a right as they do now to ask to see these, invoices, bank statements etc).
Invoices and receipts may still be kept on paper if preferred.
After difficulties with getting a small number of clients’ MTD services set up (seemingly random glitches while the new system started) MTD has been going reasonably smoothly.
Digital income tax returns
These will begin, with quarterly updates to HMRC, from April 2024. Taxpayers who are in business or who are landlords, and who have gross income over £10,000, will need to be keeping digital records, with quarterly updates going to HMRC. Taxpayers can either use accounting software or keep spreadsheet records. Crucially, each transaction – each job invoiced, each expense paid – needs its own separate entry which is added up within the software/spreadsheet. I am suggesting that clients stay with or move to using spreadsheets and get into practice ready for this. This is with a view to most clients being able to submit their own ‘quarterly updates’, with the final return prepared by me. I myself shall be using spreadsheets, with ‘bridging software’ which enables the details to be submitted electronically to HMRC.
HMRC is also pushing taxpayers towards a 31 March or 5 April year end by 2024. I am encouraging clients who use a different accounting date to consider switching in the next (2022) tax return.