You may have heard about Making Tax Digital (MTD) in the press and wondered what it is all about.

This post is designed to give you some insight into the MTD roadmap and what to expect.

Importantly, all businesses will be affected in the fullness of time so it’s not something you can ignore and as always with these things, it is better to be fully prepared early on rather than rushing it later.

So in this post, we are going to cover;

  • What is MTD?
  • What taxes does MTD include?
  • Who does it affect?
  • What should I do about MTD?
  • Where can I get help with MTD?

What is MTD?

Making Tax Digital is the UK government’s roadmap for digitising tax services including the submission of returns.

The transformation process started in April 2019 with the introduction of MTD VAT submissions for larger businesses and includes a roadmap that encompasses three different types of taxation for companies, partnerships, the self-employed and landlords.

What taxes does MTD include?

The MTD process is a long term project to move a variety of taxes onto a totally digital footing.

The aim is to get businesses and individuals to the point where there is no manual intervention between the prime document, recording of accounting information and the submission of returns.

If you are a VAT registered business then you’ll already have encountered MTD and all VAT submissions are now done online.

For self-employed individuals and landlords, MTD  for Income Tax Self Assessment (MTD ITSA) comes into effect for accounting periods starting on or after 6 April 2023.

Currently, the plan is to introduce MTD for limited company tax returns (CT600) with a pilot scheme slated for 2026.

With the success of the VAT MTD scheme and an ever-present need to speed up services and reduce costs, it is likely that HMRC will extend MTD to other forms of taxation in the near future.

Who does it affect?

Currently, all businesses with a turnover of more than £85,000 are required to register for VAT. Voluntary registration is available for companies that turnover less than this amount.

This means that any business that reaches the VAT threshold will have no choice but to report under MTD.

Self-employed individuals will need to adopt MTD ITSA from 2023 and this includes landlords with rental properties. This requirement only applies to people who have income from rental or self-assessment of £10,000 or more.

There is also a voluntary adoption scheme underway for people who wish to report under MTD early.

Corporation tax MTD is currently in development and the expectation is that this will be introduced in Q2 of 2026. If it is implemented in the same way as VAT and Auto Enrollment then it will be rolled out to large businesses first followed by small and micro companies later.

What should I do about MTD?

Whilst this is a major shift in the way that people submit their tax returns it isn’t without precedent and doesn’t need to be a major problem.

In fact, this type of change has happened before, with the Construction Industry Scheme (CIS) and payroll reporting of PAYE and NICs both having been digital for some time.

In terms of VAT, if you are nearing the threshold and expect to turnover more than £85,000 then you will need to register for VAT MTD and you should contact us as soon as possible so that we can help.

For self-assessment MTD the current government guidance is that people will need to;

  • keep digital records
  • use compatible software
  • sign up for the scheme
  • send quarterly business income and expenses updates (rather like a monthly CIS or quarterly VAT returns)
  • finalise business income each year
  • submit a final declaration in place of a Self Assessment return (similar to an FPS for payroll)

Now theoretically a business could use a spreadsheet with an app that would allow them to submit electronically to HMRC but to be honest in practice this is likely to be much more trouble than it is worth.

It is far better to subscribe for a business-class bookkeeping package that will allow you to keep your records digitally and when MTD becomes a reality, will allow you to submit your income and expense updates and final declaration automatically.

There are many different packages on the market but we always recommend Xero to our clients as it is competitively priced, HMRC approved and will include all the updates needed to allow MTD reporting.

We’d suggest starting as soon as possible with digital accounting if you haven’t already.

Given that businesses will have to submit a quarterly income and expense return, it makes sense to implement a quarterly review of your accounts to get everything in order before you press the button.

And we’d also suggest getting some training with your chosen app (we can help with this) so that you know you are doing things correctly when MTD does finally hit.

Where can I get help with MTD?

When MTD was implemented for VAT what we saw was a huge influx of customers who had found that they were right up against the deadline for adoption and hadn’t done anything about it!

The problem was that all accountants had a similar rush, which meant that many clients couldn’t get the help they needed.

We’d suggest not leaving it to the last minute and booking in a call now to discuss your needs.

As you’d expect we’re all over MTD and have long experience of helping clients implement technology that helps them to run their business more efficiently and comply with HMRC requirements.

As Xero certified gold partners we’re able to advise on the best package to suit your needs and set up your system to add real value to your business.

We also provide training on accounts, bookkeeping and digital systems so we can help you and your staff get up to speed and put in the systems and processes you need to cope with MTD.

In short, the MTD help you need is only a phone call away!

Contact us now and let’s talk.