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    Tag: Making Tax Digital

    HMRC to reform Self Assessment penalty system

    Posted on by Rebecca Campbell

    From 2026, the current standard £100 fine for late filing of Self Assessment tax returns is due to be changed to a points-based system for self-employed individuals and landlords with a turnover above £50,000.

    HMRC have confirmed that the penalty system will be reformed in order to curb the abuse of the Self Assessment system and support taxpayers who genuinely make an occasional mistake.

    The proposed penalty reforms for paying tax late will be based on the length of time the tax is outstanding, meaning the earlier the overdue payment is made, the lower the penalty charge will be.

    The points-based system will be beneficial for those who only occasionally miss deadlines. For example, if an individual misses a self assessment deadline, they will initially be given one point, with a financial penalty only being charged once a set number of points has been reached. This approach recognises that taxpayers who infrequently miss deadlines should be encouraged to comply with filing obligations, rather than immediately being charged a penalty. Instead, the new penalty regime will penalise the minority who persistently miss filing and payment deadlines.

    Although the reforms already apply for VAT, following the government decision in December 2022 to give businesses more time to prepare for Making Tax Digital (MTD) for Income Tax, the changes are now due to come in from April 2026.

    Get in touch

    If you would like to discuss the Self Assessment penalty system changes in more detail, please speak to your usual PM+M adviser or email us at enquiries@pmm.co.uk.

    MTD for ITSA deferred for 2 years

    Posted on by Helen Buchan

    The treasury has confirmed that there will be a delay of 2 years to the timetable for Making Tax Digital for Income Tax Self-Assessment. Due to come into effect from April 2024, this deadline has now been pushed to April 2026.

    This is welcome news given the overwhelming calls from tax and accounting bodies that the IT structure simply isn’t ready for implementation yet. However, it does mean it’s another movement of goalposts which makes it difficult for businesses and landlords to plan ahead with any degree of certainty.

    The full adjustments announced to the scope and timing of MTD for ITSA include:

    • The 2-year delay until April 2026 for mandatory MTD ITSA filing
    • Minimum income reporting level increased to £50,000, with those earning more than £30,000 mandated to join the scheme in 2027
    • The situation for landlords and sole traders earning less than £30,000 will be reviewed
    • Partnerships will not be brought into MTD for ITSA as previously planned in 2025
    • Points-based penalty system will be extended to MTD ITSA filers when they join

    The minister wrote, “The government understand businesses and self-employed individuals are currently facing a challenging economic environment, and that the transition for MTD for ITSA represents a significant change for taxpayers, their agents, and for HMRC.”

    They have allowed more time to prepare, “so that all businesses, self-employed individuals, and landlords within the scope of MTD for Income Tax, but particularly those with the smallest incomes, can adapt to the new ways of working.”

    The full statement can be read here.

    However, there has been no confirmation as to whether this is likely to impact the basis period reform for the self employed and partnerships. The timing of this was originally aligned to fit in with the start of MTD for ITSA in April 2024 to get everyone onto a real time, tax year basis of profit reporting.

    We will keep you updated on any further changes and how these may impact you.

    Get in Touch

    If you have any questions in relation to MTD for ITSA, please get in touch with your usual PM+M adviser or email enquiries@pmm.co.uk.

    HMRC confirms MTD penalties from 1 November

    Posted on by Rebecca Campbell

    HMRC is reminding businesses that from Tuesday 1 November, the soft-landing penalty waiver for Making Tax Digital for VAT will be removed, and existing online accounts for submitting VAT returns will not be available.

    All businesses that file their VAT returns monthly or quarterly must sign up to Making Tax Digital (MTD) and use MTD-compliant software to keep their VAT records and file their VAT returns.

    HMRC can charge a penalty of up to £400 for filing a return which is not an electronic submission from 1 November 2022.

    The amount businesses may be fined is dependent on their turnover. A penalty applies to each return filed incorrectly, and the penalty will be:

    • £100 if turnover is below £100,000;
    • £200 if turnover is between £100,000 and £5,600,000 inclusive;
    • £300 if turnover is between £5,600,001 and £22,800,000 inclusive; and
    • £400 if turnover is £22,800,001 or above.

    Even if a business currently keeps digital records, they must check their software is MTD-compatible and sign up for MTD before filing their next return.

    If a business is already exempt from filing VAT returns online, or if the business is subject to an insolvency procedure, they will automatically be exempt.

    Get in touch

    If you have any questions in relation to becoming MTD compliant, including reviewing your current VAT procedures, guiding you towards a suitable solution, assisting with quarterly submission to HMRC and even providing training for your team, please contact your usual PM+M adviser or get in touch with Jill Morris using the button below.

    MTD for ITSA Questions and Answers

    Posted on by Helen Buchan

    What does MTD for ITSA stand for?

    MTD for ITSA stands for Making Tax Digital for Income Tax Self-Assessment.

    What is MTD for ITSA?

    Essentially, it’s a fundamental change to the way personal tax information must be reported to HMRC.

    What will change when MTD for ITSA becomes compulsory?

    It will require digital record keeping and digital submissions, through your own software, of income and expense information on a quarterly basis, followed by an End of Period Statement (EOPS).

    Who will MTD for ITSA impact?

    MTD for ITSA will impact all taxpayers with a gross income of £10,000 or more from self-employment and/or property rental.

    When will the changes come into force?

    It is due to become compulsory in April 2024.

    Are there any exceptions to the changes?

    Trusts, estates, trustees of registered pension schemes and non-resident companies.

    General partnerships that earn more than £10,000 per year and have only individuals as partners (April 2025) and all other partnerships at a future date to be confirmed.

    Businesses exempt from MTD for VAT will also be exempt from MTD for ITSA and there will be digital exclusions available for some individuals.

    Do I need to do anything now?

    Whilst April 2024 may seem quite some time away, considering the changes and making adjustments to the way you record your income and expense information now could make your life much easier in the long run.

    How do I keep a digital record?

    The digital record keeping requirement will mean taxpayers will have to use an accounting-MTD software package to record all the financial transactions for the period.  This software will then prepare the quarterly returns and end of period statement.  A submission will be made via the software by a digital link to HMRC.

    How will the reporting requirements work?

    For each trading or property business, a quarterly report of income and expenses will need to be submitted. The first of these quarterly updates will be due for filing by 5 August 2024, and will cover either the quarter ended 5 July 2024, or 30 June 2024 (where a calendar quarter election is in place).

    Separate quarterly updates will be required for each trade or category of property business but there is no requirement to make tax or accounting adjustments to the information provided in quarterly updates.

    An end of period statement, EOPS, for each business is required and effectively replaces the tax return for those income sources.

    The EOPS will cover the tax year (regardless of the accounting period of the business) and will be due for filing by the normal self-assessment deadline of 31 January following the relevant tax year. All property businesses must use the tax year as the accounting basis period, but trades can use any accounting period.

    The MTD ITSA regime will incorporate all the reporting required on the current self-assessment tax return into a ‘finalisation’ or ‘crystallisation’ statement. This statement will bring together all the information included in the MTD reports, plus other taxable income, such as investment and employment income, to calculate the tax liability for the tax year. This will be due by 31 January after the end of the tax year.

    This is in total 6 reports that need to be filed with HMRC – 4 x quarterly reports; 1 x EOPS; 1 x tax return.

    Other considerations

    There are lots of changes coming and it is important that you are equipped with the information needed and well prepared to implement the required changes before they become compulsory. Our dedicated MTD for ITSA team are perfectly positioned to support you and your business, and will be happy to chat through how the changes are going to impact you. Get in touch by emailing enquiries@pmm.co.uk or calling 01254 679131.

    A comment to note that the article does not constitute personalised advice and that advice should be sought before taking any action.

    Making Tax Digital for Income Tax Self-Assessment

    Posted on by Helen Buchan

    Making tax digital for income tax Self-Assessment (MTD-ITSA) will become compulsory from April 2024 and whilst this may seem quite some time away, considering the changes and making adjustments to the way you record your income and expense information now could make your life much easier in the long run.

    What is MTD-ITSA?

    Essentially, it’s a fundamental change to the way personal tax information must be reported to HMRC.

    It will require digital record keeping and digital submissions of income and expense information on a quarterly basis, followed by an annual statement. As mentioned, it is due to become compulsory in April 2024 for taxpayers with gross income of £10,000 or more from self-employment and/or property rental with the following exceptions:

    • Trusts, estates, trustees of registered pension schemes and non-resident companies
    • General partnerships that earn more than £10,000 per year and have only individuals as partners (April 2025) and all other partnerships at a future date to be confirmed

    Businesses exempt from MTD for VAT will also be exempt from MTD for ITSA and there will be digital exclusions available for some individuals.

    Record keeping

    The digital record keeping requirement will mean taxpayers will have to use an accounting-MTD software package to prepare the quarterly returns and end of period statement.

    Reporting

    For each trading or property business, a quarterly report of income and expenses will need to be submitted. The first of these quarterly updates will be due for filing by 5 August 2024, and will cover either the quarter ended 5 July 2024, or 30 June 2024 (where a calendar quarter election is in place).

    Separate quarterly updates will be required for each trade or category of property business but there is no requirement to make tax or accounting adjustments to the information provided in quarterly updates.

    An end of period statement, EOPS, for each business is required and effectively replaces the tax return for those income sources.

    The EOPS will cover the tax year (regardless of the accounting period of the business) and will be due for filing by the normal self-assessment deadline of 31 January following the relevant tax year. All property businesses must use the tax year as the accounting basis period, but trades can use any accounting period.

    The MTD ITSA regime will incorporate all the reporting required on the current self-assessment tax return into a ‘finalisation’ or ‘crystallisation’ statement. This statement will bring together all the information included in the MTD reports, plus other taxable income, such as investment and employment income, to calculate the tax liability for the tax year. This will be due by 31 January after the end of the tax year.

    In addition to MTD-ITSA there will also be changes to the tax year basis of assessment with transitional rules being introduced in 2023-24 under basis period reform for self-employed individuals and partnerships. If you are affected by basis period reform, this is something we can discuss further and assist you with.

    There are lots of changes coming and it is important that you are equipped with the information needed and well prepared to implement the required changes before they become compulsory. Our dedicated MTD-ITSA team are perfectly positioned to support you and your business, and will be happy to chat through how the changes are going to impact you. Get in touch by emailing enquiries@pmm.co.uk or calling 01254 679131.

    A comment to note that the article does not constitute personalised advice and that advice should be sought before taking any action.

    Making Tax Digital for Income Tax Self-Assessment: a basic guide

    Posted on by Laura Boyd

    Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) brings a fundamental change to the way personal tax information must be reported to HMRC.

    It will require digital record keeping and digital submissions of income and expense information on a quarterly basis, followed by an annual statement. It is due to become compulsory in April 2024 for taxpayers with gross income of £10,000 or more from self-employment and/or property rental with the following exceptions:

    • Trusts, estates, trustees of registered pension schemes and non-resident companies
    • General partnerships that earn more than £10,000 per year and have only individuals as partners (April 2025) and all other partnerships at a future date which is to be confirmed

    Businesses exempt from MTD for VAT will also be exempt from MTD for ITSA and there will be digital exclusions available for some individuals.

    Record keeping

    The digital record keeping requirement will mean taxpayers will have to use an accounting-MTD software package to prepare the quarterly returns and end of period statement.

    Reporting

    For each trading or property business, a quarterly report of income and expenses will need to be submitted. The first of these quarterly updates will be due for filing by 5 August 2024, and will cover either the quarter ended 5 July 2024, or 30 June 2024 (where a calendar quarter election is in place).

    Separate quarterly updates will be required for each trade or category of property business but there is no requirement to make tax or accounting adjustments to the information provided in quarterly updates.

    An end of period statement (EOPS) for each business is required and effectively replaces the tax return for those income sources.

    The EOPS will cover the tax year (regardless of the accounting period of the business) and will be due for filing by the normal self-assessment deadline of 31 January following the relevant tax year. All property businesses must use the tax year as the accounting basis period, but trades can use any accounting period.

    The MTD for ITSA regime will incorporate all the reporting required on the current self-assessment tax return into a ‘finalisation’ or ‘crystallisation’ statement. This statement will bring together all the information included in the MTD reports, plus other taxable income, such as investment and employment income, to calculate the tax liability for the tax year. This will be due by 31 January after the end of the tax year.

    In addition to MTD for ITSA, there will also be changes to the tax year basis of assessment with transitional rules being introduced in 2023-24 under basis period reform for self-employed individuals and partnerships. We are yet to receive detailed guidance from HMRC on the practicalities of the reform.

    Get in touch

    Making Tax Digital is bringing lots of changes, but we are perfectly positioned to support you and your business before the official launch in April 2024. Prepare now and overcome any challenges with the transition to digital before the new rules come into force. Get in touch to discuss MTD for ITSA in more detail by emailing enquiries@pmm.co.uk.

    Making Tax Digital for VAT: a basic guide

    Posted on by Rebecca Campbell

    In November 2020, HMRC announced that Making Tax Digital (MTD) rules will be mandatory for ALL VAT-registered businesses with a taxable turnover below £85,000 from their first return on or after 1 April 2022.

    Are you compliant?

    In this blog, we cover the basics to help you get a better understanding and be more confident about MTD for VAT.

    What is Making Tax Digital?

    Making Tax Digital is part of a wider government initiative to make tax administration more efficient and effective. MTD replaces manual tax administration with two things:

    • An online system where you can submit VAT returns (with MTD compatible software)
    • The digitisation of business records

    You can read more about the scheme here.

    What records do you need to keep digitally?

    As part of the rules, businesses will be required to keep a record of all accounting transactions digitally – handwritten records are no longer acceptable.

    If you use a scheme you may be required to keep additional records:

    • Retail Scheme: total daily gross takings
    • Flat Rate Scheme: items that VAT can be reclaimed on

    Although all your transactions must be archived digitally, you are not required to scan additional records like invoices or receipts.

    Finding the right software

    Compatible VAT record keeping software connects to HMRC systems.  It must be able to:

    • Keep and maintain digital records specified in the regulations
    • Prepare VAT returns using these records
    • Communicate with HMRC via a digital link

    You can check your software, or find a compatible product here, If you are considering changing your accounting software we will be happy to guide and assist you.

    Linking software

    If you find that you need to link your software packages (e.g., if you use more than one software or if you are maintaining them using spreadsheets), you can use a digital link. But what does a digital link comprise of?

    HMRC highlight the following:

    • Data is electronically transferred between software programmes, products, or applications. This may include using a formula to link cells in spreadsheets (e.g., where cells are linked by using a formula in one sheet that mirrors the source’s value in another cell)
    • The transfer is automatic (data cannot be manually moved between software or copied over by hand i.e., copy and paste).

    Exemptions

    For those who are unable to keep digital records of a business or use digital tools to submit VAT returns (may be impractical due to age, disability or location), you can ask HMRC for an exemption from MTD and follow the guidance in Section 3.4 of Notice 700/22.

    Get in touch

    If you have any questions in relation to becoming MTD compliant, (including reviewing your current VAT procedures, guiding you towards a suitable solution, assisting with quarterly submissions to HMRC and even providing training for your team), our team of digital experts in the PM+M cloud team can help! We have already helped hundreds of businesses become compliant – read some of our client testimonials by clicking here.  To find out more, get in touch with Jill Morris by clicking the button below.

    Making Tax Digital for VAT – are you prepared?

    Posted on by Rebecca Campbell

    From 1 April 2022, ALL VAT-registered businesses must comply with Making Tax Digital for VAT.  In our latest blog, we highlight some useful tips and reminders for those of you who still need to prepare.

    What is Making Tax Digital for VAT?

    Making Tax Digital for VAT (MTD) forms part of a wider government initiative to make it easier for individuals and businesses to get their tax right – simplifying the process. MTD aims to transform tax administration so that it is more effective and more efficient.

    Who is affected?

    VAT-registered businesses with turnover above the VAT threshold of £85,000 have been required to follow the Making Tax Digital for VAT rules since April 2019. From 1 April 2022, all VAT registered traders, including smaller businesses with turnover less than the threshold must adhere to the rules.

    Examples of businesses which may be affected from April include those who are trading below the VAT registration threshold, those that make zero-rated supplies, on which no VAT is charged, or businesses who are only VAT registered to recover VAT they incur.

    You may be able to apply for an exemption from MTD for VAT if you are unable to use a computer or access the internet due to age, disability, or remote location. If this applies to you, an application must be submitted by contacting HMRC.

    What information must be kept digitally?

    As part of the new rules, you will be required to keep a record of all your accounting transactions digitally. This means that handwritten records are not acceptable any longer.

    You may already keep these records digitally, however, the difference with MTD is that you must use a compatible software package to submit your VAT return.  You will not be able to log on to HMRC and enter your VAT return figures on line.

     What is compatible software?

    Compatible VAT record keeping software connects to HMRC systems and allows you to store and update records like receipts and VAT invoices digitally.

    It must be able to:

    • Keep and maintain digital records specified in the regulations
    • Prepare VAT returns using these records
    • Communicate with HMRC via a digital link

    Do I need to register for MTD for VAT?

    You can sign up for MTD online, but you must have compatible software in place before you register.

    To sign up, you will need:

    • Your business email address
    • Government Gateway user ID and password
    • VAT registration number
    • Latest VAT return

    New VAT penalty regime

    A new VAT penalty regime, which was due to come into force on 1 April 2022, has been deferred to January 2023. Read more about the new penalties for late submission and payment penalties in our recent blog.

    Is MTD only for VAT?

    At the moment, YES.  The next stage in the government’s plans for a digital tax system will be a change for Income Tax.  Self-employed business owners and landlords with annual business or property income above £10,000 will need to follow the rules for Making Tax Digital for Income Tax from 6 April 2024.

    Get in touch

    If you have any questions in relation to becoming MTD compliant, (including reviewing your current VAT procedures, guiding you towards a suitable solution, assisting with quarterly submission to HMRC and even providing training for your team), please contact your usual PM+M adviser or get in touch with Jill Morris using the button below.

    Making Tax Digital for Income Tax delay confirmed     

    Posted on by Rebecca Campbell

    Today, HMRC have confirmed a delay to the introduction of Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA). The government will now introduce the digitalisation of income tax a year later than planned, in the tax year beginning April 2024.

    General partnerships are not required to join the MTD for ITSA until the tax year beginning in April 2025.

    According to HMRC, the purpose of the extension is to give those individuals who are required to join the scheme more time to prepare, as well to allow more time for additional customer testing in the pilot, which is currently taking place.

    MTD for ITSA will be a requirement for businesses with an income over £10,000 per annum. Those eligible for the scheme will have the opportunity to sign up to the pilot scheme, as it is extended during 2022/23 and 2023/24.

    This delay has also had a knock-on effect on the plans to introduce basis period reporting for the self-employed and partnerships, which is currently out for consultation and has come in for some criticism due to the rushed nature of the original time scale.

    In recognition of these concerns, these changes will not come into effect before April 2024, with a transition year not coming into effect earlier than 2023. The government will respond to the consultation in due course providing the next steps.

    Read more on the Gov.uk website by clicking here.

    Get in touch

    If you have any questions in relation to becoming MTD compliant, please get in touch with your usual PM+M adviser or email enquiries@pmm.co.uk