Making Tax Digital

Making Tax Digital (MTD) is a UK government initiative that aims to modernize the tax system by introducing digital record-keeping and filing requirements for businesses and individuals. Under MTD, businesses are required to keep digital records of their income and expenses using approved software or apps, and submit their VAT returns digitally to HM Revenue and Customs (HMRC).

MTD was first introduced in April 2019 for VAT-registered businesses with a taxable turnover above the VAT registration threshold, and it was extended to include all VAT-registered businesses in April 2022. The government plans to introduce MTD for income tax and corporation tax in the future, but the timeline for this is yet to be confirmed.

The aim of MTD is to make the tax system more efficient, accurate, and easier for taxpayers to manage. By introducing digital record-keeping and filing requirements, MTD aims to reduce errors and increase compliance, as well as reducing the administrative burden on businesses and individuals.

HM Revenue and Customs (HMRC) introduced Making Tax Digital (MTD) in order to modernize and streamline the tax system in the UK. The existing system for submitting tax returns and keeping records was seen as outdated, inefficient and prone to errors, which led to problems such as incorrect tax payments and penalties for non-compliance.

By requiring businesses and individuals to keep digital records of their income and expenses and submit their tax returns electronically, MTD aims to make the tax system more accurate, efficient, and easier to manage. Digital record-keeping and filing are expected to reduce the risk of errors and mistakes, as well as reducing the administrative burden on taxpayers and HMRC.

HMRC also expects MTD to improve compliance, as digital record-keeping and filing requirements make it easier for them to identify discrepancies and take action against non-compliant taxpayers. Additionally, MTD is expected to provide a better user experience for taxpayers, as they will have access to real-time information about their tax affairs and be able to manage their tax affairs more easily through digital channels.

The timeline for when Making Tax Digital (MTD) will affect you depends on several factors, such as your business type, turnover, and tax obligations. Here are some key dates to be aware of:

• Since April 2019, MTD for VAT has been mandatory for businesses with a taxable turnover above the VAT registration threshold (currently £85,000).
• From April 2022, MTD for VAT was extended to include all VAT-registered businesses, regardless of their turnover.
• MTD for Income Tax is currently being piloted, and the government has proposed to make it mandatory for self-employed individuals and landlords with an annual business or property income above £10,000 from April 2023.
• MTD for Corporation Tax is currently being developed, and it is expected to become mandatory for companies from 2026 at the earliest.

If you are a VAT-registered business with a taxable turnover above the VAT registration threshold, or if you are a self-employed individual or landlord with an annual business or property income above £10,000, you will need to comply with MTD for Income Tax when it becomes mandatory. You should also keep up-to-date with any changes or developments regarding MTD for Corporation Tax if you are a company.

It’s important to note that the government may change the timelines for MTD implementation, so it’s a good idea to stay informed and seek professional advice if you’re unsure about your obligations.

If you need help with Making Tax Digital (MTD), there are several resources available to support you:

1. HMRC guidance: HMRC has published extensive guidance on MTD, including step-by-step guides on how to get started, record-keeping requirements, and how to submit returns. You can find this guidance on the HMRC website.
2. Approved software providers: To comply with MTD, you will need to use approved software or apps to keep digital records and submit your returns. HMRC has published a list of approved software providers on their website, so you can choose the one that best suits your needs.
3. Accountants and tax advisors: If you are struggling to understand MTD or need help with record-keeping and filing, you can speak to an accountant or tax advisor who can provide tailored advice and support.
4. MTD pilot schemes: HMRC has piloted MTD for Income Tax and Corporation Tax, and you may be able to join a pilot scheme if you meet the eligibility criteria. This will give you the opportunity to test the new system and provide feedback before it becomes mandatory.
5. Webinars and training: There are many webinars and training courses available to help you understand MTD and how to comply with it. You can find these on the HMRC website, or through professional organizations such as the Chartered Institute of Taxation.

Remember, it’s important to keep up-to-date with any changes or developments regarding MTD, and seek professional advice if you’re unsure about your obligations.