What is ‘Making Tax Digital’?

AllTax
Written By Ben Sampson

Making Tax Digital (MTD) is a scheme introduced by HMRC that promotes the use of digital accounting systems to maintain accurate business records. In this blog post, we will explore the changes that have already been made, as well as what's next for MTD and how it will impact you.

One of the most significant changes to tax in recent years has been the implementation of MTD for businesses. In this blog post, we will explore the changes that have already been made, as well as what's next for MTD and how it will impact you.

MTD is a scheme introduced by HMRC that promotes the use of digital accounting systems to maintain accurate business records. The primary objective of MTD is to simplify tax administration and make the process more efficient. 

 

Making Tax Digital for Businesses

The first phase of MTD for businesses came into effect in April 2019, requiring all VAT-registered businesses with a taxable turnover above the VAT threshold (£90,000) to keep digital records and submit VAT returns using compatible software. 

The aim of this change was to simplify tax reporting and reduce errors, while also making the process more efficient and streamlined.

Since then, there have been a number of additional changes and updates to MTD, including:

  • In April 2022, MTD was introduced for VAT for businesses with taxable turnover below the VAT threshold

  • Businesses are now required to use digital links when submitting VAT returns, ensuring that data is transferred efficiently between different software programs

  • The introduction of a points-based penalty system for non-compliance with MTD, which came into effect in April 2022

Overall, MTD has been successful in reducing errors and improving the effectiveness of tax reporting for businesses. However, there are still some challenges posed by MTD, particularly for smaller businesses that may struggle with the costs and complexity of digital record-keeping systems.

Making Tax Digital for Income Tax

While the focus of MTD has primarily been on businesses, there are also plans to introduce digital reporting for Income Tax Self-Assessment (ITSA) in the near future. 

The first phase of MTD for ITSA was meant to go live on 1 April 2024, but it has been delayed and is set to come into effect in 2026. 

The change will require all self-employed individuals and property landlords earning over £50,000 needing to comply with the MTD for ITSA regime. This will be followed by all self-employed individuals earning over £30,000 in April 2027. 

For those that fall within the regime, the annual self-assessment tax return will instead become four quarterly submissions plus an end-of-period submission. A final declaration will also be required to bring together MTD and any non-MTD income sources to determine the final income tax liability. 

At Sampson Fielding, we are closely monitoring developments in MTD and working with our clients to ensure that they are fully prepared for the changes ahead. If you have any questions or concerns about MTD, please do not hesitate to get in touch with our team of experts.

Ben Sampson

Ben qualified as a Chartered Accountant at Sampson West offering taxation, financial compliance and advisory services to small and medium-sized firms. Ben has significant experience working with start-ups and loves helping company founders grow their businesses. Ben has experience in various sectors, including but not limited to private equity, technology and marketing.

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