Almost a decade ago, then-chancellor George Osbourne announced in Parliament the Making Tax Digital (MTD) scheme. Now in 2024, we’re still talking about it after the lengthy rollout got pushed back time and time again.
That means that not every business owner will even be aware of MTD, and those that are might be mistaken about its requirements. So, let’s go over MTD so you can know everything you need to.
What is MTD?
MTD is the government’s flagship policy for digitising the UK’s tax system – in other words, doing away completely with paper-based record-keeping and tax filing.
There are two main reasons the government wants to do this. First of all, there’s something in it for businesses: digitisation can really help businesses keep records and file taxes to make the process far easier and less stressful.
The main reason, though, is that the government thinks MTD will reduce the ‘tax gap’ – the difference between the amount of tax that should, in theory, be sent to HMRC, and the actual amount collected.
The idea is that a digital system is simpler and will eliminate a lot of mistakes, closing the tax gap. That idea has been contested, but that’s a story for another day.
MTD: A quick history
HMRC first launched its roadmap that outlined its vision for MTD in 2015. The idea was to implement it for VAT first, then income tax, and finally corporation tax.
By 2019, MTD for VAT had officially been implemented, requiring VAT-registered businesses with a taxable turnover above the VAT threshold to keep digital records and submit VAT returns with MTD-compatible software. By April 2022, every VAT-registered business had to comply.
MTD for income tax self-assessment (ITSA) was supposed to be introduced in April 2020, but was pushed by a year owing to the Covid-19 pandemic. In September 2021, it was delayed again until April 2024. In December 2022, it was delayed once more to 2026.
MTD for ITSA: The 2026 version
The plan for MTD for ITSA looks quite a bit different to the original idea – that’s what happens after so many delays and consultations. So what do you need to know in order to remain compliant when the time comes?
MTD for ITSA is being implemented in a phased rollout. That timeline is as follows:
- From April 2024: Individuals can volunteer to participate in the MTD for ITSA pilot programme.
- From April 2026: MTD for ITSA will be compulsory for self-employed businesses and landlords with a turnover above £50,000.
- From April 2027: MTD for ITSA will be mandated for self-employed businesses and landlords with a turnover above £30,000.
For businesses with a turnover below £30,000, you’ll just have to wait for HMRC to decide whether you will have to join MTD after 2027. It is more likely that partnerships with the turnovers listed above will have to join the scheme, but HMRC has not introduced a timetable for them yet.
For you limited company directors reading this, MTD for corporation tax will not be introduced before April 2026. Unfortunately, you’ll have to wait for more information to become available, too.
What do I have to do under MTD for ITSA?
Under the scheme, you need to use certain software to create and store digital records of each business transaction. You will then have to send updates of this data to HMRC every three months as a quarterly update.
Once you submit an update, you’ll receive an estimate of your tax bill in your software. Of course, that will be just an estimate, but should help you budget for your bill a bit easier.
At the end of the tax year, you will have to fill out and send a final declaration. This essentially replaces the function of the self-assessment tax return.
What software can you use?
Under MTD for ITSA, you use software to do just about all of your tax work. But what software can you use? The simplest answer is cloud accounting software like that offered by Xero and Sage. These programmes are easy to use, MTD-compatible and benefit from the wider advantages of cloud software.
Get in touch with an accountant
MTD for ITSA is a completely new system, so it’s important to get in touch with someone who can help you make sense of all the changes – someone like an accountant.
With an accountant like us by your side, you gain access to personalised guidance that can help you understand your new responsibilities, and most importantly, prepare for them.
From setting up digital record-keeping systems to providing ongoing support and assistance with cloud software, we’ll help you adapt to MTD.
All you have to do is get in touch with us.
