What Small Businesses Need to Know

1. VAT Requirements:

If you operate a VAT-registered business, you are required to keep digital records and submit VAT returns using MTD-compatible software. This rule has been mandatory for VAT-registered businesses since April 2022. If you're new or not yet signed up, HMRC will automatically enroll you unless you are exempt or have applied for an exemption​.

2. Income Tax Self Assessment (ITSA):

For self-employed individuals and landlords earning above certain income thresholds, MTD for ITSA will be mandatory from April 2026. If your annual business or property income exceeds £10,000, you'll need to use MTD-compatible software to keep records and send updates to HMRC quarterly. This initiative was initially set to start in 2023 but has been postponed to give businesses more time to prepare​.

3. Benefits of MTD:

Adopting MTD can lead to significant benefits, including:

Accuracy: Improved record accuracy and reduced errors in tax submissions. Efficiency: Quicker processing of information and potentially faster tax refunds. Integration: The ability to integrate tax obligations with everyday business operations using software, simplifying the management of finances​.

4. Choosing Software:

Selecting the right software is crucial. The software must be compatible with MTD, and it should suit your business's specific needs. HMRC provides a list of compatible software options on their website​. (and we're happy to report that Balance by Squeegee is now officially recognised by HMRC)

5. Exemptions and Support:

Some businesses may qualify for exemptions from MTD due to digital exclusion (e.g., inability to interact with digital tools due to age, disability, remote location, or other valid reasons). HMRC offers guidance and support for businesses applying for exemptions. Additionally, HMRC and various vendors provide extensive support and resources, including webinars and tutorials, to help businesses transition smoothly to MTD​ (Gov.uk)​.

Action Steps for Small Businesses

• Evaluate your current systems to ensure they comply with MTD requirements.
• Select and implement MTD-compatible software that fits your business operations.
• Train your staff or consult with your tax agent about how to use the new systems and processes.
• Stay informed about updates from HMRC concerning MTD to ensure ongoing compliance.
• For further details on Making Tax Digital, including guidelines and resources for your business's specific needs, visit the official GOV.UK Making Tax Digital page.