Making Tax Digital
Making Tax Digital or MTD is intended to make managing tax easier and more efficient. The plans have been phased in over a number of years, so it isn’t new. 
 
As well as setting up an online personal tax account, submitting VAT returns digitally has been a requirement since April 2022. 
 
What’s new is that the plans to introduce MTD for income tax self assessment (ITSA) have been postponed until 2026. However, the government still intends to introduce MTD for ITSA for self-employed people and landlords with income over £ 50,000. 
 
Here are some MTD facts you might find helpful. 
 
The purpose of Making Tax Digital 
The government says the aim of Making Tax Digital is to help businesses get their tax right first time by reducing errors. MTD will do this by making it easier to manage tax affairs using digital tools that will help businesses to grow. 
 
MTD for VAT was introduced in 2019 for VAT registered businesses. They were encouraged to voluntarily keep digital records and use accounting software to complete their VAT returns. 
 
From 1 April 2022 all VAT-registered businesses have had to submit their returns digitally. However, businesses file their VAT returns at different times, depending on their accounting periods. In effect MTD for VAT therefore only became compulsory for their first VAT period after that date. 
 
All VAT-registered businesses have been required to use MTD compatible software to keep records and submit VAT returns since 1 November 2022. 
 
Registering for Making Tax Digital 
You will need to register for MTD for VAT if your business is approaching the VAT turnover threshold of £85,000. You will need a Government Gateway account to do this. 
 
You will need to confirm that you’re using compatible software that can communicate with HMRC’s systems. You must also make sure your digital records meet the requirement to be saved for up to six years. 
 
The information you will need to provide includes: 
your business name and contact details 
company VAT number and details 
VAT on goods made and received 
adjustments to returns 
time of supply 
rate of VAT charged 
reverse charge transactions 
daily gross takings (DGT) if you’re a retailer 
assets you’ve purchased that can be reclaimed if you use the Flat Rate Scheme 
value of sales made 
documentation about multiple supplies made or received on behalf of your business by volunteers or employees for example. 
 
Your VAT transactions can be summarised in spreadsheets but you will need compatible software to send the information to HMRC. 
 
Making Tax Digital for ITSA 
Making Tax Digital for income tax self assessment is new. It will be phased in from April 2026 for self-employed people and landlords with annual income over £50,000. People with income between £30,000 and £50,000 will need to use MTD for ITSA from April 2027. 
 
The rules that will apply to partnerships or businesses with income below £30,000 per year have not been confirmed yet. 
 
Information will be sent to HMRC each quarter and records will have to be kept digitally. This will be instead of the current annual self assessment tax return. 
 
HMRC says people will then have more accurate information about their income tax position throughout the year. 
 
At the end of the accounting year a final report and statement that includes allowances and reliefs must be submitted. This is when your tax for the year will be confirmed. 
 
Although MTD for ITSA isn’t yet compulsory you might be able to sign up now to prepare. You can do this if you’re a UK resident and a sole trader or landlord renting out UK property. However, you won’t be able to sign up yet if you need to report income from other sources such as employment or pensions. 
 
Making Tax Digital for corporation tax 
The government ran a consultation on Making Tax Digital for corporation tax in March 2021. We don’t yet know how or when this might be introduced. 
 
Please get in touch if you’re interested in signing up for MTD for ITSA or would like advice about MTD requirements. 
 
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