‘Making Tax Digital’ Looms for more Limited Company Contractors

‘Making Tax Digital’ Looms for more Limited Company Contractors

02/17/2022 - 13:19

The Government’s flagship digital tax policy will be extended to include more contractors and limited company directors from April 2022.

Making Tax Digital (MTD) is HMRC’s strategy to make taxes easier and more efficient. But complying with the rules does come with an additional cost for businesses that need to use Government-approved accounting software.

Who will be affected?

At present the only ‘digital’ tax is VAT. Only VAT-registered businesses with a taxable turnover over the VAT threshold (£85,000) currently have to follow the MTD rules by keeping digital records and using compliant software to submit VAT returns.

The scope of these rules will be extended from April 2022 so that all VAT-registered businesses (including those with a turnover below £85,000) will need to follow MTD for VAT rules. 

The scope of MTD will be extended again in April 2024 when all self-employed businesses and landlords with business or property income over £10,000 will need to follow MTD rules for income tax.

The Government is currently consulting on MTD for Corporation Tax, but this will not be mandated before 2026.

Can I avoid ‘Making Tax Digital’ for VAT?

If you operate through a limited company and have a taxable turnover over £85,000, you need to follow the MTD rules for VAT.

If you run a limited company and are registered for VAT, but you don’t turnover more than £85,000 per year, then you can avoid following the rules by deregistering for VAT before April 2022.

There are other ways you can avoid MTD for VAT.

You can avoid MTD rules entirely if you decide to work through an umbrella company. Umbrella company working is easier than running a limited company, but it is usually less tax efficient.

Complying with Making Tax Digital for VAT

To comply with MTD for VAT, your business needs to keep digital records and use compliant software to submit VAT returns electronically.

The easiest way to do this is to use an accountant that works on Government-approved software like FreeAgent or Xero.

Umbrella.co.uk's sister company CloudAccountant.co.uk is one of the most experienced MTD software accountants around and our team holds Platinum Partner status with both FreeAgent and Xero.

For a free Making Tax Digital consultation, speak to a member of the team today. Call: 0800 121 6513.