Making Tax Digital has been on everyone’s radar for a while now, but with recent changes, there’s still a lot you need to consider.
In a rush? Don’t miss these key points:
- You can no longer use your non-digital filing methods for VAT if you’re VAT registered. You have to be signed up to MTD now.
- MTD for income tax self-assessment (ITSA) has been delayed for the self-employed and landlords until April 2026.
- Using MTD-compliant software as soon as possible is the best way to prepare for the changes.
Let’s look at a few scenarios, and just how MTD might affect you.
I’m a VAT-registered business: what do I need to do?
MTD for VAT is now mandatory for all VAT-registered businesses. If you’re not keeping digital records, you won’t be able to comply.
So make sure you’re using compatible software to submit your returns.
This will pull through information from your digital records, which must be preserved for up to six years.
I’m self-employed: what do I need to do?
The scheme’s next phase applies to record-keeping and reporting for income tax. Digital reporting should be familiar to you if you’re already using cloud accounting software, but you’ll still need to prepare for this next step.
Mandatory involvement in MTD for ITSA has been pushed back to April 2026 – this is the latest in several delays.
It was delayed in 2020 because HMRC wanted to give businesses a chance to get back to speed after the pandemic, before being delayed again in December 2022.
It will be introduced and enforced in two phases:
- Phase one, April 2026 – you’re included if you make over £50,000 annually from self-employment or rental income (originally, those with an income of £10,000 or higher would have come under the scheme)
- Phase two, April 2027 – the scheme extends to those with an income between £30,000 and £50,000
The Government has yet to determine what businesses under £30,000 will need to do and whether they’ll eventually need to comply with the scheme. Ruling and guidance are expected closer to the first deadline.
When MTD for ITSA becomes mandatory, you’ll no longer need to submit your self-assessment tax returns to HMRC once a year. Instead, you’ll use MTD-compatible software to:
- keep digital records of your business income and expenses
- send quarterly updates to HMRC every three months
- finalise your business income using an end of period statement (EOPS) and a final declaration each year.
If you own more than one business, you’ll need to keep separate records for each income source.
How do I get compliant now?
- Use MTD-compliant software – this is the main step to future-proofing your business. If you’re already keeping your records online, you’re making life much easier for yourself come April 2026.
- Check if you can sign up early now – if you’re already registered, you’ll be complying ahead of schedule.
- If you cannot sign up now, make a plan. You’ve got plenty of time to implement changes to your business ahead of the deadline.
I pay corporation tax: what do I need to do?
There is yet to be more information from the Government on how MTD will affect corporation tax (they ran a consultation, which finished in March 2021). For the moment, there’s no deadline set.
Obviously, using cloud accounting software will be a safe bet for preparing for the future.
When it finally becomes mandatory for all businesses, MTD will significantly change the UK financial landscape.
If you need support getting ready for MTD, help to understand the changes, or general support with cloud accounting software, we’re here to help you out.
Get in touch with us today to discuss anything Making Tax Digital related.