Making Tax Digital: How It's Affecting Landlords and the Self-employed
To recap on what Making Tax Digital is. The Making Tax Digital (MTD) regime requires certain businesses to maintain records digitally for VAT purposes, filing VAT returns via functional & compatible software. Nearly all VAT-registered businesses with a VAT'able turnover of more than £85,000 are already filing VAT returns under this regime. Here is HMRC's latest update on making tax digital for VAT:
Going back to the 1st of April 2022, all VAT-registered businesses, regardless of annual turnover (VAT‘able turnover of less than £85,000), were required to sign up for MTD for VAT. This included self-employed individuals and landlords.
From the 1st of November 2022, all businesses (unless you fall into one of the limited exceptions) were required to sign up for Making Tax Digital (MTD) and submit VAT returns using Making Tax Digital-compatible software. i.e from 1st November 2022, you will not be able to use your existing HMRC VAT online account to send monthly or quarterly VAT returns. Exceptions include businesses that submit VAT returns annually can continue with the existing VAT online account until May 2023.
HMRC has recently published details of the penalties they will charge for those businesses that fail to comply with Making Tax Digital, which is based on your annual turnover. Some are saying that these penalties are outdated and unfair. The penalties are:
- If you turnover is less than £100k, the penalty is £100
- If your turnover is between £100,001 and £5,600,000, the penalty is £100
- If your turnover is between £5,600,001 and £22,800,000, the penalty is £300
- If your turnover is £22,800,001 or more, the penalty is £400
In addition, business can also find themselves facing a further daily penalty of between £5 and £15 for failure to keep digital records or failure to use digital links to transfer or exchange data between different pieces of software.
The good news, if you wish to call it that... is that these will be introduced from the 1st of January 2023.
It is also worth knowing what is coming soon:
- From April 2024, self-employed businesses and landlords with business turnover above £10,000 are to report under MTD for Income Tax. This was due to come in in April 2023
- From April 2025, general partnerships join MTD
- From April 2026, companies join MTD for Corporation tax
If you have any further questions, then please don't hesitate to email me at suda.ratnam@raffingers.co.uk or click here.