MTD – What is on the horizon and what do construction businesses need to know aboutcreative77
There have been a lot of changes in the construction industry lately – most recently, the introduction of MTD for VAT registered businesses.
So, to help you understand how MTD will affect the construction industry, we’ve written a full breakdown explaining what MTD is, how it will affect your business and what you need to do next.
What is Making Tax Digital?
Making Tax Digital (MTD) is a government-led scheme that aims to digitise tax administration. So, instead of rifling through paperwork and receipts, you can manage your tax-related admin tasks online.
The intention is to streamline your tax returns by using accounting software to make the process easier, more efficient and a lot less time-consuming.
Who will be affected?
We have recently entered phase two of the MTD initiative, meaning all VAT registered businesses must comply with MTD guidelines regardless of their taxable turnover. (Before now, only companies with a turnover of £85,000+ had to comply.)
What does this mean for the construction industry?
MTD compatible software – All VAT-registered businesses must adopt MTD approved software to store and submit their digital records and tax returns, such as Sage and Free Agent.
You will need to submit five “tax returns” per year – But before you start to panic, this will actually work in your favour!
By filing quarterly updates or returns, you’ll be able to monitor your tax throughout the year, meaning you’re less likely to make any mistakes or be hit by any unexpected expenses.
But in short, CIS is a government scheme whereby contractors deduct money from a subcontractor’s payment and pass it onto HMRC to pay towards the subcontractor’s tax and National Insurance.
DRC is a scheme that relieves sub-contractors from handling VAT and HMRC payments when hired by a VAT-registered customer. The employer is solely responsible for dealing with the VAT.
But what do they have to do with Making Tax Digital?
One of the benefits of adopting MTD software is that you’re able to calculate domestic VAT reverse charge and submit CIS easily and efficiently – saving you from the stress of scribbling down calculations!
MTD for Income Tax – Phase three of the MTD initiative includes Making Tax Digital for Income Tax. Whilst this isn’t mandatory until April 2024, many people in the construction industry are self-employed.
So it’s a good idea to get familiar with accounting software ahead of time as this will affect any self-employed person or landlord with an income over £10,000, we are planning some drop-in sessions for our clients in the autumn to come and learn a bit more about what they need to do and how we can support them.
And finally – embrace Making Tax Digital
Making Tax Digital may seem like a daunting prospect, but once you’re set up with the right software, it will make it easier and so embrace the change and enjoy having more time, less paperwork and greater control over your taxes!