Making Tax Digital (MTD)

What is Making Tax Digital (MTD):

The Making Tax Digital (MTD) is a UK government initiative that sets out a vision for the “end of the tax return” and a “transformed tax system” by 2020. HMRC states that the main goal of MTD is to make tax administration more effective, more efficient, and simpler for taxpayers.

HMRC is implementing the initiative and is working closely with accounting software developers to ensure that taxpayers are able to make the switch to digital tax. The outlined changes apply to a wide range of taxpayers, including most businesses, micro-businesses, self-employed people, and landlords, as well as individual taxpayers.

Curent Update:

From April 2023, Self Assessment taxpayers will need to comply with Making Tax Digital for Income Tax.

The present scheme of MTD:

Since 1 April 2019, the vast majority of VAT-registered businesses with a taxable turnover above the VAT threshold (£85,000) have been mandated to keep digital VAT records and send returns using MTD-compatible software.

From 1 April 2022, changes for VAT registered businesses:

From 1 April 2022, all VAT-registered businesses with a taxable turnover below £85,000 will be required to follow MTD rules for their first return starting on or after April 2022. This will be regardless of their turnover.

For Income Tax/Self-Assessment

From April 2023, MTD for Income Tax Self-Assessment for unincorporated businesses and landlords with total business or property income above £10,000 per year.

Here are some points regarding this scheme:

  • Those who join MTD for income tax will need to send a quarterly summary of their income and expenses to HMRC using MTD-compatible software.
  • They will receive an estimated tax calculation to help them budget for their tax payments.
  • The estimate will be based on the information entered.
  • That information won’t account for any tax-relievable payments such as gift aid or pension contributions, or any tax due on other income.
  • At the end of the year, they can add any non-business information and finalize their tax affairs using MTD-compatible software.

Benefits of Making Tax Digital:

  • Increased business productivity, going digital could save one day per week of business administration.
  • Less paperwork.
  • Reduced stress and worry when it comes to filing tax returns.
  • You can see tax data on mobile devices.
  • Real-time tax information is available on devices.
  • Greater accuracy and fewer errors when submitting tax returns.