ACCOUNTS & OUTSOURCING
Making Tax Digital
OUR SPECIALIST Accounts & Outsourcing SERVICES
This Making Tax Digital (MTD) hub will provide you with updates, and insights and will answer the most commonly asked questions. If you would like any further information about MTD, please get in touch with one of the team members below or use our enquiry form.
The government’s Making Tax Digital (MTD) initiative has progressed more slowly than originally planned, but it is moving forward, and will continue regardless of Brexit and coronavirus. The first area where MTD has imposed new obligations is VAT.
Except for a small minority, since April 2019, VAT-registered businesses with an annual turnover above the VAT threshold (£85,000) have been required by law to use MTD to meet their VAT obligations. This involves setting up a digital tax account and filing quarterly returns online, using an accounting system or app that is integrated with HMRC’s new digital gateway. HMRC will also want online access to transaction details and VAT calculations.
MTD compatible software
Under the new system, you will have to ensure your software is compatible with MTD. If you’re used to submitting VAT returns on spreadsheets, you will need ‘bridging software’ to bridge the gap between Excel and HMRC’s system. If you are using a bespoke software or ERP system, it is worth checking with your software provider what their plans are and if they will be able to upgrade the software in time.
The most reliable alternative is cloud-based (online) accounting and bookkeeping software. Leading providers including Xero confirmed they would be compatible with MTD by April 2019, enabling people to submit directly from their software and meet HMRC requirements.
If you’re not using online software yet, the prospect shouldn’t worry you. It’s an opportunity to become more efficient and more profitable. Both are things we are pleased to support our clients with: we work closely with our recommended provider Xero, as one of their platinum partner firms.
If you’re a landlord with filing obligations under MTD, we can introduce you to Hammock: leading software for landlords that’s been accredited by the ICAEW.
To see what Hammock can do, watch our webinar recording from July 2022 and get in touch with us if you’d like to know more.
MTD timetable so far
| Date | Information |
|---|---|
| April 2019 | Businesses with turnover over VAT threshold: Requirement to hold digital records for VAT purposes for VAT periods starting on or after 1 April 2019 |
| 7 June 2019 | File your first digital VAT return if you do monthly returns for the period April 2019 |
| April 2020 | End of soft landing period: For VAT periods starting 1 April 2020, there must be a digital link where different software applications are used to produce a VAT return and submit to HMRC |
| 7 August 2020 | File your first digital VAT return if you do quarterly returns for the period April to June 2019 |
| 7 September 2020 | File your first digital VAT return if you do quarterly returns for the period May to July 2019 |
| 7 October 2020 | File your first digital VAT return if you do quarterly returns for the period June to August 2019 |
| April 2022 | Businesses with turnover below VAT threshold: requirement to follow MTD rules for your first return starting on or after this month |
MTD timetable: what’s ahead
| Date | Information |
|---|---|
| 6 April 2026 | Businesses, self-employed individuals, and landlords with income over £50,000: requirement to follow MTD for Income Tax rules from your next accounting period starting on or after this date |
| 6 April 2027 | Businesses, self-employed individuals, and landlords with income between £30,000 and £50,000: requirement to follow MTD for Income Tax rules from your next accounting period starting on or after this date |
Landlords and Making Tax Digital
We explain how Making Tax Digital for Income Tax is expected to work for landlords, and how BKL and Hammock can help.
Frequently Asked Questions
Once you’ve got used to the new way of doing things, going digital will mean:
- Greater efficiency
- Fewer errors in your data, as you and HMRC share the same data
- HMRC will be able to approve refunds that currently cause extra checks more quickly
- More free time
With the aid of cloud based software, you will have convenient access to your data from anywhere. This software will also make it easier for your business to record and file your tax returns online.
If you have a VAT registered business with an annual turnover above the threshold of £85,000, you need to keep digital records and submit VAT returns using compatible software.
This involves setting up a digital tax account and filing your returns online using an accounting system or app that’s integrated with the new digital gateway that HMRC is building.
HMRC will also want online access to transaction details and VAT calculations. Paper records will no longer be sufficient.
If you already use appropriate software then this is a good start, but you may still need to upgrade your software so that it can connect to the new HMRC gateway. As MTD progresses you may also have to change the way you connect transactions that are recorded in a different software (e.g. supplementary calculations in Excel or sales systems).
Our MTD team would be happy to advise you on this: please use our enquiry form to get in touch.
If this is the case then you will need the following:
- MTD compatible software
- Your government gateway login details
- Email address connected to your government gateway
- Business type (e.g. Limited company)
- Company Registration Number (as per Companies House)
- UTR (10-digits)
Then visit the government’s website and complete the questions with the above information.
You will be asked to agree to receiving information by email and to confirm the email address. HMRC will then send you an email for verification and you must click on the link provided in that email.
This will then take you to the final sign up page asking you to confirm you want to join the pilot. Once you select to join the pilot it will take 72 hours for HMRC to confirm that you can take part in the trial. Once you receive that notification by email, you need to follow the instructions within your software.
We expect that the pilot will automatically switch to live.
As an individual taxpayer, you will need to use a personal tax account through HMRC. This will bring together all your details in one place: more convenient for you and more efficient for HMRC.
From 6 April 2026, MTD for Income Tax (also referred to as MTD for ITSA) will apply to businesses, self-employed individuals, and landlords with income over £50,000.
From 6 April 2027, MTD for Income Tax (also referred to as MTD for ITSA) will apply to businesses, self-employed individuals, and landlords with income over £30,000.
If this applies to you as a sole trader or landlord, you will need to send HMRC a quarterly summary of your business income and expenses using MTD-compatible software.
Following the four quarterly summaries, HMRC will also require an End Of Period Statement and a ‘final declaration’.
We have more details in this article.
In December 2022, the Government said that it ‘will now review the needs of smaller businesses, and particularly those under the £30,000 threshold. This will look in detail at whether and how the MTD for ITSA service can be shaped to meet the needs of smaller businesses and the best way for them to fulfil their income tax obligations.’
HMRC hasn’t announced when this will be extended to general partnerships or more complex partnerships (e.g. limited liability partnerships and those with corporate partners).
The following stage, MTD for Corporation Tax, also has no introduction date yet, but HMRC has said that it ‘will not [be mandated] before 2026’.
