Making Tax Digital

Making Tax Digital (“MTD”) and its extension forms a crucial building block in the government’s 10-year strategy to reform the UK’s tax system by implementing a “digital first” approach to tax filings and interaction with HMRC, and to move towards a more “real time” exchange of data between tax payers and HMRC. The programme will ultimately result in a major change in the way tax is handled for the vast majority of businesses and individuals currently submitting self-assessment tax returns.

The first stage of HMRC's MTD programme focuses on VAT and imposed new requirements on some VAT registered businesses and organisations from April 2019.

MTD1

Since April 2019 VAT registered businesses and organisations with taxable turnover above the VAT threshold of £85,000 are required to:

  • Maintain their accounting records digitally in a software product or spreadsheet. Maintaining paper records will cease to meet the legal requirements in tax legislation.
  • Submit their VAT returns to HMRC using a functional compatible software product that can access HMRC’s API (Application Program Interfaces) platform.

MTD2

From April 2022 all VAT registered businesses are required to opt into MTD and file their VAT returns using MTD compatible software as above. There is no soft landing period for MTD2.

No changes are being made to:

  • VAT rules other than those that relate to record keeping and filing.
  • The amount of information submitted to HMRC; the VAT return will contain the same nine boxes that it does currently though the regulations do allow for additional information to be submitted on a voluntary basis.
  • The current filing and payment deadlines for VAT

Businesses that newly register for VAT will need to consider how they will comply with the MTD for VAT requirements and will have very limited time in which to comply.

Once a business is required to comply with the MTD for VAT requirements, the obligations continue unless they deregister for VAT.

MTD for Income Tax (MTD for ITSA)

MTD for ITSA will apply from April 2024 for individual self employed businesses and landlords with annual business or property incomes above £10,000. MTD ITSA will become mandatory for all general partnerships without corporate or trust members with annual business or property income above £10,000 from 2025.