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Making Tax Digital Chartered accountant Jonathan Bardolph advises on the changes to taxation and how this may affect your business For aesthetic practitioners in business (whether it be as a sole trader, partnership, or limited company) you will soon be moving away from calculating tax annually to a quarterly submission and payment system. Currently, individuals complete an annual tax return and pay Her Majesty’s Revenue and Customs (HMRC) through payments every January and July. Payments on account are based on the previous year’s income and business profits. This results in a balancing payment (or refund if the profits are subsequently lower) the following January. The UK government is introducing Making Tax Digital (MTD) for income tax (and later corporation tax) which will change the way tax is administered.
Whilst the changes are due in 2023, with the effective dates being dependent on the type of entity you trade as, it is important to organise your aesthetic practice now so when MTD is effective, your practice is compliant and ready on time. Whilst this may be an added layer of administration alongside running a business, there are some useful benefits in complying with MTD early.
Outlining MTD The majority of aesthetic practices are either sole trades, partnerships or limited companies. A self-employed individual must maintain accounting records to enable an annual self-assessment tax return to be
Whether your business is affected by VAT, income tax (and NI) or corporation tax, MTD will become a mandatary requirement over the next few years
prepared (or partnership return if trading as a partnership) in case HMRC decide to raise an enquiry.1 The types of records that need to be maintained are predominantly, but not limited to, business income and expenses.2 Many practitioners keep manual records and populate these onto a spreadsheet before sending them to an accountant to enable a tax return to be prepared. Whilst this is acceptable for the purposes of preparing a tax return, it is not going to be sufficient when MTD becomes effective, as the government has introduced this to help businesses and individuals keep up to date with their affairs. MTD for self-employed individuals is effective for accounting periods starting on or after April 6, 2023, for annual business incomes above £10,000. These rules also apply to property income for landlords.3 MTD means that digital accounting records need to be maintained on MTD compatible software and submissions will be made quarterly to HMRC.4 A final tax return declaration will be done at the end of the year for various claims and reliefs.5 For many VAT-registered businesses, MTD is already in operation for submitting VAT returns and has been since April 2019,3 but this is only in relation to VAT (in other words, it does not include corporation tax or income tax currently).
VAT and MTD It is interesting to note that where a practitioner has been trading under the VAT registration threshold (taxable annual turnover of less than £85,000)6 previously, but becomes liable to register for VAT, they must in addition, comply with MTD for VAT purposes. The rolling taxable turnover test (which is the basis on whether a business must mandatorily register for VAT) should be monitored continuously by practitioners to ensure that either the business registers for VAT on time or does not need to register if the 12-month taxable turnover is not breached.6 Where insufficient records are maintained, or the bookkeeping is not reviewed, late VAT registration penalties can result.9 For businesses trading as limited companies, the government will introduce MTD for corporation tax no earlier than 2026.3 However, there is a good argument to ensure your aesthetic practice uses MTD compatible software much earlier to enable tax planning and cash flow management.
Reproduced from Aesthetics | Volume 8/Issue 11 - October 2021
