Making Tax Digital Phase 2
In April 2019, HMRC launched the first phase of Making Tax Digital, which affected thousands of businesses in the UK. The first stage of MTD was a ‘soft-landing’ phase with leniency given to businesses, to help them adapt to the changes. It was expected that from 6th April 2020, Making Tax Digital Phase 2 would commence but as of yet there has been no indication of this. Experts suggest that over 1 million businesses will be affected by the changes coming in the second phase of MTD.
Businesses must use bookkeeping software to manage their accounts in a way that is fully digitalised.
Businesses must also keep track of supplies received and made, including the time of supply, the value and the VAT rate. This is required for every item sold or purchased.
Under the Making Tax Digital reforms, data set out in the VAT notice must be digitally captured from transaction through to VAT return.
Bridging software will still be permitted.
Although unconfirmed by HMRC, many sources speculate that a penalty element will be introduced. It is believed that penalties will work on a points-based system, with a taxpayer receiving a point when a submission or payment is late. Once a threshold is reached, HMRC will apply a penalty. If a threshold is not reached, the points will expire in the order that they were accrued, with points having a 24-month lifetime,
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