Tax Update

HM Revenue and Customs are working towards having a fully digital tax system that is ‘Making Tax Digital’ (MTD). The idea of MTD will be that it will simplify everyone’s record keeping for their businesses and make it easier to maintain the information required to calculate tax payments.

Making Tax Digital for VAT

MTD for VAT requires VAT registered businesses to keep records digitally and file their VAT returns using an MTD compatible software. VAT registered businesses with a taxable turnover of more than £85,000 are already required to follow MTD for VAT and maintain digital records. VAT registered businesses with a taxable turnover of less than £85,000 will be required to comply with MTD for VAT for their first VAT return starting on or after April 2022.

This will mean that you will be required to use a digital format of record keeping. There are several compatible software available and if these are regularly updated, they will be compatible with MTD and ready to use. For now, the option of using a bridging software is available which enables you to use Excel as a way of storing your data. A bridging software will create a digital link between the excel spreadsheet and HMRC which will enable you to make your VAT return submission. Currently HMRC have not stated bridging software will be phased out however it may be possible in the future, and everyone will be required to use a compatible software.

Once your ready to go with the compatible software you will need to sign up for Making Tax Digital for VAT with HMRC and this can be done via their website.

If you require any assistance or guidance on choosing a suitable software for your business, training to use a software or registering for MTD for VAT then please do not hesitate to contact the office and we will be more than happy to help you.

Making Tax Digital for Income Tax

Self employed businesses and landlords with annual business or property income above £10,000 will need to follow MTD rules for Income Tax from their next accounting period starting on or after 6 April 2024.

This will mean that you will be required to keep digital records of all your business and property income and expenditure, and you will be required to send updates to HMRC every 3 months via your chosen compatible software. At the end of the accounting period, you will need to finalise your business income in a declaration, where you will be confirming that the quarterly updates that you have been submitting were correct. A final declaration will need to be submitted after the tax year end, which will enable you to finalise your yearend position and calculate your final tax liability for the year.

The list of compatible software is growing, and we would expect to receive more updates within the next 6 months on the exact data that will need to be submitted, how this will be submitted and the full list of software who are going to be compatible. We would expect that those software who have been compliant for MTD for VAT will also be compliant for MTD for Income Tax however this has not been confirmed yet.

Making Tax Digital for Corporation Tax

The next stage will be MTD for Corporation Tax which is still in the consultation stage, but we are expecting this to be compulsory before 2026.

Key Dates

  • April 2024 all VAT registered business to be using a digital or bridging software to submit VAT returns
  • April 2025 all businesses or property income business with income more than £10,000 to be ready for MTD.

Changes to National Insurance and dividend tax

It has recently been announced that there will be a rise in National Insurance Contributions and dividend tax over the next three year to generate additional income for the health and social care reform. We are expecting to see the new rules come into form from April 2022.

National Insurance contributions for both the employed and self employed will temporarily rise by 1.25% from April 2022 and from April 2023 this increase will be replaced by a separate heath and social care levy. All working adults, even those working above state pension age, will pay the new health and social care levy as part of their National Insurance contributions from Apirl 2023. Only those below state pension age will be required to pay the increase in the next tax year (2022/23).

Currently basic rate taxpayers pay 7.5% tax on dividends over their dividend allowance of £2,000. From April 2022 this will increase to 8.75% and for higher and additional rate tax payers the rate will rise from 33.75% to 39.35%.

The tax rises are expected to generate £12bn of additional revenue each year for the government.

Written by Alice Gay ACCA ACIPP

Sign Up to Our Newsletter