What is Making Tax Digital (MTD)?
Originally announced by George Osborne in his 2015 Budget, MTD is a Government initiative to update the UK’s tax system by implementing a fully digital tax system where taxpayers are legally obliged to keep digital records and use MTD compatible software to make tax submissions electronically.
The aim is for HMRC to become one of the most digitally advanced tax administrations in the world. The main aims of Making Tax Digital are to make the tax system:
· more effective
· more efficient
· easier for taxpayers to get their tax right
A 2017 government-commissioned report suggests errors and failure to take reasonable care accounts for £9.4bn of tax lost annually. In helping businesses get their tax obligations right first time, MTD will also provide more certainty and a clearer view of their tax position.
Who will be affected?
The first phase of MTD was introduced in 2019 and covered VAT for VAT-registered businesses with an annual turnover above the VAT threshold.
The government is extending the requirement to operate MTD to the 4.2m taxpayers with business and/or property income over £10,000, including landlords, sole traders, and partnerships, for their Income Tax obligations. These changes will apply to businesses, self-employed individuals and landlords who are chargeable to Income Tax.
Making Tax Digital (MTD) makes it easier for businesses and individuals to record and declare tax to HMRC. Under the new rules, HMRC require eligible businesses to record transactions digitally and submit VAT returns to HMRC using compatible accounting software.
Making Tax Digital for Income Tax also known as MTD for Income Tax Self-Assessment (MTD ITSA) will change the way millions of business owners and landlords report their earning to HMRC, in essence, making it easier for businesses and individuals to record and declare their tax.
Timeline for MTD:
· From April 2019: MTD VAT is mandatory for VAT-registered businesses and organisations with taxable turnover above the VAT threshold of £85,000.
· From April 2022: It became a legal requirement for all VAT registered businesses to register for Making Tax Digital (MTD), thereby removing the VAT threshold requirement. Click here to read more about MTD – VAT
· From April 2024: MTD Income Tax Self-Assessment (ITSA) will be mandatory for the self-employed and those with income from property. It will only apply to those with turnover from self-employment plus gross income over £10,000. Click here to read more about MTD – ITSA
· From April 2025: MTD ITSA will be mandatory for general partnerships with annual turnover greater than £10,000
· From April 2026: MTD Corporation Tax. The MTD corporation tax consultation suggests a pilot could be launched in 2024 with a full rollout not before April 2026.
Our cloud accounting credentials
We don’t just understand digital and cloud accounting, we excel at it. We’re a Xero Platinum Partner and were the first accountancy firm in the world to receive a Xero migration certification. Our 5-star ratings on Reviews.io and Google are a result of the strong relationships, satisfaction and trust we have built with our clients.
We can support you with the following:
· Transitioning to accounting software, including advising on the best options and providing software training
- Providing bridging software
- Registering for MTD
- Reviewing current processes for confidence of compatibility
- Advice/support on claiming MTD exemptions