Making Tax Digital (MTD) is a government initiative, first announced in 2015, intended to modernise the tax system – making it more effective and efficient for taxpayers to submit critical tax information and keep on top of their tax affairs. The scheme also marks the end of self-assessment tax returns.
MTD requires most businesses, self-employed professionals and landlords to update and maintain digital records using third-party software.
Making Tax Digital – what has happened so far?
MTD was partially introduced on 1st April 2019, applicable only to VAT businesses registered with a taxable turnover above £85,000. All affected businesses were required, by law, to store their VAT records digitally and file their returns using digitally compatible software.
From April 2021, the VAT soft landing period ended, meaning businesses must now have digital links and record-keeping systems in place.
From April 2022, MTD will be extended to all VAT-registered businesses with turnover below the VAT threshold of £85,000.
Making Tax Digital for Income Tax Self-Assessments (MTD for ITSA) – the delayed deadline
The mandatory use of Making Tax Digital software for income tax reporting will be phased in from April 2026, two years later than previously scheduled.
Originally scheduled for April 2024, the delayed deadline will only apply to businesses, self-employed individuals and landlords who have income above £50,000. Those with income over the £30,000 threshold will be required to comply with MTD for ITSA from April 2027.
Under the Making Tax Digital extension, the way taxes are reported will change, with more frequent reporting and a continuous compliance cycle being introduced. However, the tax process, and the amount of tax collected, will not change.
Those who are affected will need to keep digital records of all business income and expenses – keeping only paper records will no longer be accepted.
A review into how MTD for ITSA can best be applied to meet the needs of smaller businesses, particularly those with an income below £30,000, has also been announced, which will take place before further decisions are introduced by the Government.
Previously mandated for April 2025, MTD for ITSA requirements will no longer apply to general partnerships.
HMRC recognises that not all organisations are fit to use the digital tools required for Making Tax Digital. Therefore, it will review potential exemptions on a case-by-case basis.
Although the process of Making Tax Digital is already in action, further changes to the system must be anticipated.
For more information on Making Tax Digital and how we can support you through the switch to digital, get in touch with us today. Our specialist tax team will ensure you are compliant and benefit from the new digitised tax system.