Making Tax Digital

What you need to know

Making Tax Digital (MTD) is a Government initiative making fundamental changes to the way the tax system works. Transforming tax administration so that it is more effective, more efficient and easier for taxpayers to get their tax right. MTD will ultimately move taxpayers to a fully digitised system, with businesses and individuals required to register, file, pay and update their information using a secure online tax account.

Taxpayers must be fully prepared for these changes, as they could face fines or penalties if they do not comply in future.

Making Tax Digital for VAT

All VAT registered businesses should now be signed up for MTD for VAT.  You no longer need to sign up yourself.

HMRC will sign up all remaining businesses to MTD for VAT automatically unless they are exempt or have applied for exemption.

You should now keep digital VAT records and submit VAT Returns using compatible software each quarter.

Making Tax Digital for Income Tax

MTD for Income Tax Self-Assessment (ITSA) will now be delayed for two more years until April 2026.  It was due to take effect from April 2024 and would have required all self-employed individuals and landlords with income over £10,000 to report earnings though the MTD and ITSA system. 

However, the Treasury have confirmed that, MTD for ITSA will now be introduced from April 2026. Businesses, self-employed individuals and landlords with income over £50,000 will be required to join first.  Those with income over £30,000 will be mandated to join from April 2027.

The Government intends to review the needs of smaller businesses in regard to MTD for ITSA, and will consider how the initiative can be shaped to meet their needs. 

They have also stated that they will not extend MTD for ITSA to general partnerships in 2025 and remain committed to introducing it at a later date.

Making Tax Digital for Corporation Tax

HMRC intends to introduce its MTD initiative into the Corporation Tax system from 2026 at the earliest. At the moment, we don’t know a lot about this phase of MTD as the Government is still consulting with businesses and their agents to help design an effective MTD for Corporation Tax. The Government will provide businesses with an opportunity to take part in a pilot for MTD for Corporation Tax and will not mandate its usage before 2026.

The next steps

While the deadlines for the various stages of MTD may seem some way off, the changes required to comply with the new system are complex. Businesses and taxpayers may need to invest in new technology, such as cloud accounting software, and alter their method of recording and reporting accounts and tax information.

We have already helped a wide range of businesses with the initial stages of MTD and can assist and advise you in putting the necessary software and procedures in place.

MTD compatible software

If your accounting software is MTD compatible, it has the facility for VAT Returns to be filed with HMRC and receive information back from HMRC directly, such as confirmation that a VAT Return has been received.

HMRC has published a list of accounting software providers who currently have MTD compatible software.

However, our Cloud Accounting team can give you help and advice to find online accounting software that is suited to you and your business.