MTD for Income Tax:
The new way of reporting earnings to HMRC is through Making Tax Digital for Income tax. It is a way for the government to digitalize the United Kingdom. Instead of filing a self-assessment tax return, you will have to send the income tax updates using software and maintain digital records. You need to signup or ask your agent to sign you up for MTD using compatible software.
What do you need to sign up?
You must have your business name, email address, your national insurance number, the type of accounting i.e., cash or standard, accounting span, and your user ID and password. You can create a new government gateway ID and password if you don’t have one already.
What do you need to do after signing up?
All your income and business expenses need to be recorded digitally and sent to HMRC every three months using compatible software. You can send the updates to HMRC often. However, the software will also inform you when to send an update to HMRC.
Based on the information provided by you in the quarterly summary, you can see the amount of tax you owe to HMRC through a year-to-date calculation feature on the software.
You can send any personal income, claims, reliefs, and your finalized income and business expenses at the end of your accounting period. By the end of the accounting period:
You will have to make an annual declaration based on the correct information you have submitted earlier.
31st January of the following year will be the date for you to pay the amount of tax that you owe.
MTD for Corporation Tax
It is evident that soon the corporation tax will come into the fold of MTD. It means that the MTD will be extended to corporation tax. It is however told that it will not start until April 2026.
What to expect?
It is crucial to know that the extension of MTD to corporation tax means that the conventional and fundamental method of record-keeping will be shaken up. The essentials of the MTD will be:
A digital record of the income and all business expenditures will be maintained by the businesses and organizations using compatible software.
The businesses and organizations will have to provide updates of income and expenditures every three months.
They will use compatible MTD software to file their annual CT returns.
What should be recorded digitally?
The companies are directed to keep a digital record of all the transactions.
The date and amount for each transaction will be recorded in the assigned category.
Some of the non-financial data like company type, company address, and classification will be recorded.
The companies will have to make a final declaration and calculate their final taxes and returns using the software at the end of the accounting period.