Making Tax Digital (MTD) is an HMRC initiative to encourage businesses to keep their accounts up to date and digital. MTD aims to help make tax admin more efficient.
Up to date accounts can help business owners keep better track of how their business is doing. It can also help in spotting any potential problems earlier on.
MTD for VAT
The first phase, MTD for VAT, went live 1 April 2019 for most VAT registered businesses. These businesses now have to keep digital records and submit their summary VAT returns directly to HMRC from their own accounting software or using bridging software from a suitable spreadsheet. Our Business Toolkit is already set up to take care of this for most businesses and you can find detailed requirements on MTD for VAT on HMRC’s overview of Making Tax Digital.
As with any change, this was not popular with busy business owners and those who generally struggled with technology and tracking their business. However, once things are settled in, you will start to reap the benefits of moving onto accounting software with numbers at your fingertips. For those already using software to submit their VAT returns, phase one of MTD was a bit of a non-event. The impact was felt most by the smallest businesses who were handling their VAT returns manually or on spreadsheets.
Anyone registered for VAT will need to comply with MTD from 1 April 2022. Currently, businesses who are mandatorily VAT registered (earning over £85,000), need to follow the MTD rules.
MTD for Income Tax
Phase two will be MTD for Income Tax. This is expected to go live 1 April 2024. The annual tax return will be replaced by four quarterly submissions plus a final adjustment submission.
If your accountant typically makes lots of adjustments at the year end it may be that some of these bigger tweaks need to be done in each quarterly return. For instance, if you’re recording your invoices mainly for VAT and credit control purposes, you may not usually adjust your stock or depreciation and capital allowance figures until the year end.
The quarterly reporting will be required for any business or landlord with a turnover (not profit) over £10,000 per year.
Digital Tax Accounts
HMRC have set up digital tax accounts for each individual and business. These allow the taxpayer to see, ‘in real time’, the updated records that HMRC holds for most taxes. Although this is referred to as real time, many records are only updated at certain times during the month or after a few days delay.
It’s also possible to make changes to some of those records online instead of having to write or hang on the telephone for an individual at HMRC to deal with the change.
Find out more about phase 2 of MTD in our Business guide Making Tax Digital: Extension to income tax self-assessment.
This article is intended as general information only and does not constitute advice in any way. For any specific questions, you may want to consult a qualified accountant.