Making Tax Digital overview and timeline

March 5, 2023
This guide was last updated on:
February 18, 2023

‘Making Tax Digital’ or MTD, is an important part of HMRC’s plans to make it much easier for businesses and individuals to pay the correct amount of tax and manage their tax affairs more efficiently. The Government’s intention is to achieve this by a gradual switchover to digital tax accounting for all taxpayers. MTD will make fundamental changes to the way the tax system currently works.     

Instead of submitting their usual Self-Assessment tax return either online or printed off and sent by post, businesses and individuals will now each have a Digital Tax Account, in the same way as they have an online banking account. The Digital Tax Account will store their records in an electronic format, for example, a photograph of a paper record taken on a mobile phone and uploaded to the Tax Account.  

People will be able to interact easily, quickly and efficiently with HMRC using the online Tax Account, for example, updating a business or home address, or change of name.  

When will MTD come into force?

HMRC has set out a staggered timeline for the transition from traditional tax returns to Digital Tax Accounts. Eventually, all taxpayers will make the transition to having a Digital Tax Account. Two phases have been announced so far, relating to income tax and VAT. Further announcements have yet to be made regarding other forms of taxation. No date has yet been set for MTD Corporation Tax, but the Government has said it will be actively consulting with the business community on this matter in late 2020. 

HMRC have adopted a lenient approach to issuing penalties during this first year of MTD because they understand that businesses may have problems with the new software programmes required and will need time to adjust to the new way of working. This transitional period of grace was due to finish at the end of March 2020, but because of the difficulties caused to many businesses by the Covid-19 pandemic, this has now been extended to April 2021.

VAT on turnover of over £85,000

If your business is registered for VAT and you have a taxable turnover which is above the VAT threshold of £85,000, you now have to comply with MTD regulations by creating and maintaining digital records and using the appropriate software to link to HMRC. You should already have signed up to MTD, but if not, you should sign up as soon as possible.

VAT on turnover under £85,000

For those VAT registered businesses whose taxable turnover is below £85,000, you will be required to comply with Making Tax Digital regulations for your first VAT return from 6th April 2022

If your business turnover is below this VAT threshold, you can sign up now voluntarily, but in any case, you must ensure you are signed up before your first VAT return that starts on or after 1st April 2022.  

Allow yourself enough time when signing up - if you do not use the Direct Debit payment method, you should sign up at least 72 hours before the first VAT return is due. If you do pay by Direct Debit, allow at least seven working days before, or five working days after your return is due. You should also make sure your last Direct Debit has left your bank account before signing up

Income Tax

If you are a sole trader or small self-employed business, or an unincorporated Landlord, with an annual business or property income of more than £10,000 you will have to comply from 6th April 2023.

If your business income is less than the £10,000 threshold, or if you normally send a Self-Assessment tax return for non-business related reasons (for example, receipt of pension income or state benefits) you will not be required to comply with MTD.

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