What is Making Tax Digital?

VAT-registered businesses with a taxable turnover above the VAT threshold of £85,000 are required to keep their VAT records digitally and to submit their VAT returns using compatible software.

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. These businesses can voluntarily opt-in to the Making Tax Digital service before this time, if they wish.

Self-employed and partnership businesses and landlords with annual business or property income above £10,000 will need to follow the rules for MTD for Income Tax from their next accounting period starting on or after 6 April 2023.

What does this mean? When MTD for income tax becomes mandatory, affected businesses will be required to:

• maintain their accounting records digitally in a software product or spreadsheet (see above re MTD compliant software / bridging solution). Maintaining paper records will no longer meet the requirements of the tax legislation; and
• submit information quarterly to HMRC and finalise their tax position after the end of the tax year. The quarterly updates and end of year reports will need to made using a functional compatible software product that can access HMRC’s API (Application Program Interfaces) platform.

Self-employed businesses or landlords currently have the option to voluntarily opt-in to keeping digital records and submitting Income Tax updates to HMRC, instead of filing a Self-Assessment tax return, ahead of the requirement which will come into force in April 2023.

MTD for Corporation Tax will not be mandated until at least April 2026. There is currently a live consultation running, in which HMRC is compiling the views of companies, and other organisations that submit corporation tax, to help craft implementation. For more information or to take place in one of these consultation events, click here.