Get your business ready for MTD

What is Making Tax Digital?

Making Tax Digital (MTD) is a UK government initiative aimed at establishing a paperless tax system. Taxpayers retain digital records and use MTD-compatible software to file their taxes digitally.

VAT-registered businesses will be required to sign up to Making Tax Digital and switch to a digital VAT account by 1 November 2022. And, eventually, all businesses and self-employed individuals will be required to go paperless.

Making Tax Digital for VAT

To comply with MTD for VAT, all VAT-registered businesses must switch to digital record-keeping and use MTD-compatible software for VAT return filing.

With effect from 1 November 2022, all businesses that register for VAT must use MTD-compatible software and maintain records in an MTD account. You will no longer be able to use your previous VAT online account or submit paper returns.

Making Tax Digital for Income Tax

A new system called Making Tax Digital for Income Tax (sometimes referred to as “MTD for Income Tax Self-Assessment” or “MTD for ITSA”) will replace the current annual Self-Assessment tax return process. Beginning in April 2024, self-employed individuals and landlords will be required to use MTD for Income Tax, whereas partnerships with individual partners will have until April 2025 to comply.

Registering for Making Tax Digital

At present, Making Tax Digital only affects VAT-registered businesses, but ultimately, the requirement will apply to all businesses.

Make sure you’re in compliance with the various stages of Making Tax Digital by following these instructions.

MTD for VAT

There is now a requirement that all businesses that are subject to VAT submit their VAT returns and maintain records digitally.

The first step is to begin filing tax returns using compatible software. This software gathers information from your electronic records, to be kept for at least six years.

After that, you can use the government’s tax service to sign up for Making Tax Digital.

The digital records you’ll be required to keep include:

• business name and contact details
• VAT number and details of any schemes used
• VAT on supplies made and received
• adjustments to returns
• time of supply (tax point)
• rate of VAT charged on supplies made
• reverse charge transactions (if your software doesn’t record them, you need to record them twice as a supply made and a supply received)
• daily gross takings (DGT) if you use a retail scheme
• purchases of assets that are tax-deductible if you use the flat-rate scheme
• value of sales made and total output tax on Gold Accounting Scheme purchases (if applicable)
• documents covering multiple supplies made or received on behalf of your business (by volunteers, third party businesses, or employees)

MTD for Income Tax

In April 2024, self-employed people and landlords with incomes above £10,000 will be required to switch to Making Tax Digital.

Although not required right now, those who file a Self-Assessment tax return may be eligible to begin using MTD for income tax now.

With this system, you can avoid the hassle of completing a Self-Assessment tax return and instead preserve digital records and report any changes to your income tax to HMRC electronically.

According to HMRC, this will result in a more real-time system that presents your income tax liability in real-time. If you sign up now, you’ll have plenty of time to become acquainted with the system before the 2024 deadline.

We hope this information provides a clear understanding of MTD and what you can expect from the new digital tax system. If you need help setting your business up for MTD, we can help. Get in touch with us at 020 8850 3300.