Making Tax Digital (MTD) is a government initiative to ensure individuals and businesses get their tax right and stay on top of their affairs. MTD has three main incentives to transform the way the tax system works: make it more effective, more efficient, and easier for taxpayers to get right.

Ultimately, MTD aims to revolutionise the UK tax system and make it one of the most technologically advanced in the world.

Current rules: MTD for VAT

HMRC has been introducing MTD in stages. The initial stage was the introduction of MTD for VAT, which came into effect in April 2019. This mandated that all businesses or VAT registered individuals with a turnover above the VAT threshold of £85,000 must comply with MTD regulations.

MTD for VAT instructs that the impacted people and businesses must keep digital records and use MTD compatible software to submit their VAT returns.

Upcoming changes

At the moment, if you are below the VAT threshold, you can voluntarily join the Making Tax Digital service. However, from April 2022, all VAT-registered businesses, and individuals will be required to follow MTD rules. This is regardless of whether their turnover is above the threshold or not.

Only those who can argue a ‘digital exclusion’ will be exempt from the rules. This is for those who are unable to use apps or digital accounting software due to reasons such as religious beliefs, disability, or being based in a rural/remote location.

After this, the next deadline will be April 2024 with the introduction of MTD for Income Tax Self-Assessment (also known as MTD for Income Tax or MTD for ITSA). This means that sole traders and landlords with more than £10,000 in annual turnover will need to start reporting their earnings using MTD compatible software. General partnerships with over £10,000 of annual turnover will have to follow the same rules from 2025.

Even further in the future, HMRC have confirmed that MTD for Corporation Tax will come into force no earlier than 2026.

This will come as a relief to company directors and accountants alike as the advent of MTD for Corporation Tax will no doubt be a great upheaval for both, and so the five-year preparation time will be key to ensuring all those concerned are adequately prepared.

HMRC are planning to bring in a pilot scheme that will allow companies to trial filing their Corporation Tax returns in line with the Making Tax Digital rules in April 2024. This should give the companies who choose to participate in the scheme a head start in feeling out the impact the changes will have on the way they deal with their company tax.

What’s next?

As outlined, the next step for MTD is the requirement for all VAT registered businesses to register for Making Tax Digital for VAT regardless of turnover.

As this deadline is right around the corner, it is important to be aware of this date, and to ensure you are ready if the change in rules applies to you or your business.

However, you should not be daunted by this deadline as the automation involved in cloud software, which is the cornerstone of Making Tax Digital, means that most of the work should be done for you.

Furthermore, Williamson & Croft are always on hand to help if you feel in any way ill-prepared for the next stage of MTD.

As always, if you would like any further information regarding any of the current or upcoming stages of the Making Tax Digital scheme, please feel free to contact our offices by email