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What the new Making Tax Digital programme will mean for businesses

Timeline

The Government has an ambitious appetite to push on with the roll out of MTD, as follows:

  • From April 2022 – the voluntarily VAT-registered (VAT-able turnover below £85K) will be required to digital tax service’ and move to keeping digital VAT records and submit VAT returns using MTD-compliant software.
  • From the first day of their annual accounting period starting in the 2023/24 tax year, income tax requirements will apply to the self-employed with annual turnover above £10K.

There is a new determination to change the way the self-employed are taxed and managed. This arises from the Chancellor’s difficulties in devising a workable and fair coronavirus support scheme for the self-employed.

HMRC comments:

‘This period has emphasised the value of having access to real-time data and a more up-to-date overview of taxpayers’ financial position. Real-time data would have provided the Government with a more accurate picture of the trading and profit levels of the self-employed enabling support to be better targeted.’

‘We will also look at the long delay before the self-employed need to register and submit trading data. With earlier registration and information, it would have been possible to support those who recently set up in business, without exposing the scheme to fraud or organised criminal attack. This will form part of broader work to update the tax administration legislative framework.’

MTD Pilot

HMRC’s timetable allows the self-employed and their agents time to plan and gives software providers enough notice to bring new Making Tax Digital products to market, including free software for businesses with the simplest tax affairs.

HMRC will expand its pilot service from April 2021 to allow the self-employed to test the full end-to-end service ahead of mandation.

What about companies?

The Government will also consult in the Autumn on the detail of extending Making Tax Digital to incorporated businesses with Corporate Tax obligations.

Adam Harper, AAT Director of Strategy & Professional Standards, comments:

“AAT has always supported the Government’s ambition to enhance the tax administration system through the implementation of MTD. When AAT responded to the initial MTD consultation documents we recommended that the proposed threshold at that time of £10,000 be raised to align to the VAT threshold and to allow for a phased implementation over a three year period for businesses with a turnover below the threshold.”

“The threshold was subsequently raised in line with our recommendations, and we welcome the announcement that MTD is being extended to VAT-registered businesses with a turnover below the £85,000 VAT threshold given that these smaller businesses have now had plenty of time to get to grips with the opportunities and challenges that MTD represents, as evidenced by the 30% of them that have already voluntarily joined.”

Summary

The Government’s revitalisation of MTD goes a lot further than expected and leaves licenced accountants and AAT members working in finance teams with a steep learning curve as they get back up to speed on MTD over the coming months.

Those in practice or providing services to the smaller businesses should familiarise themselves with what is coming as soon as possible and start to plan how you can help your clients to achieve compliances with the new challenges that lay ahead. It is vital that you keep abreast of what is required, your client’s / employers rely on you to give them the advice that they need at the right time.

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To build a lasting business, you need to focus on one thing above everything else - what your customers want. Knowing your audience brings you one step closer to giving them what they want and therefore making money. You might have the greatest idea for a business, but if there aren't enough people out there who need or want it, the idea could crash and burn pretty quickly. So it's wise to undertake thorough market research before you get too invested in your business. What you need to find out about the market: Who your potential customers are and how big the market is What are their current buying habits (frequency, amount etc.) Why do they buy certain products or services, i.e their motives What will make them buy from you instead of a competitor Surveys allow you to back up your plans with quantitative data, putting you in better position to attract investment. Take a good look at your competitors too, see what they're doing right and think what you could to do better in your own business.

If you run your business from home you may need: Permission from your landlord or mortage provider Business insurance To check whether you need to pay any business rates If you're going to be operating from a shop or office, you need to make sure the premises are licensed for commercial use. If they aren't then you can apply for permission here. You may have to pay business rates depending on the value of the property you're working from. These are based on the 'rateable value' of the property, and you'll be billed by your local council. For more information on business rates you can visit the government website here. If you're planning to run a pub or restaurant then you'll need to get personal and premises licenses to sell alcohol as well as any other entertainment related licenses,

Only if your turnover exceeds £85,000 per year (2019-20) will you be required to register for VAT, whether you're a company or a sole trader. Once registered, you'll need to charge your customers VAT (depending on what you're selling). You can also register voluntarily below the threshold if it's beneficial for your business to do so. Please ask your accountant about this, if you are unsure.

If you're operating as a limited company, then you will also need to register for Corporation Tax within three months of trading, hiring someone or renting a property for your business.

When operating as a limited company your liability is limited to the amount you've invested in shares or guaranteed to the company. In other words, you are a completely separate entity from the company and are not personally liable for the debts of the company. You can learn more about this in our limited company guide.

As a sole trader, the business will be set up under your name and you are entitled to keep all of the profits, after tax. But this means you are also personally responsible for the tax owed, along with any debts incurred by the business. You can learn more about this in our sole trader guide.

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