Making Tax Digital (MTD) is marching on, with new developments planned for VAT reporting, income tax and eventually corporation tax.
The HMRC initiative aims to give the UK “one of the most digitally advanced tax systems in the world”, with digital records and online, automated reporting giving the tax authority access to more complete and more accurate data than before.
The idea is also to make things easier for business owners, encouraging software adoption and providing real-time tax information.
From next year, more businesses will come under the MTD for VAT scheme.
Then, from 2023, unincorporated businesses and landlords will need to comply with the scheme for income tax, eventually saying goodbye to the self-assessment tax return.
The plans after that point haven’t been set in stone yet, but here’s what we know so far.
April 2022: All VAT-registered businesses
From this date, MTD for VAT will extend to all VAT-registered businesses, regardless of their taxable turnover.
This is estimated to bring an extra 1.1 million businesses within scope of the rules.
Currently, the scheme is only mandatory for those with a VAT-taxable turnover of more than £85,000. It requires those businesses to keep all of their records digitally, and file quarterly returns with HMRC through compatible software.
No manual transfer of that information is allowed under MTD rules, so businesses can’t copy and paste from their spreadsheet to their accounting software. Instead, everything needs to be transferred through digital links.
April 2023: Self-assessment taxpayers
MTD for income tax self assessment, or MTD for ITSA, is the next big milestone for the MTD programme.
This will apply to unincorporated businesses and landlords with £10,000 or more total business and property income who file self assessment returns for income tax.
If you fall under that category, you’ll be required to submit four quarterly updates using compatible software, plus a final end-of-year statement to include any non-business information and finalise your tax affairs, essentially replacing the self-assessment tax return.
After submitting your quarterly updates, you’ll get an estimated tax calculation from HMRC based on the information you’ve given. This should make it easier to budget for your tax as you go, instead of receiving your final balance at the end of the year.
April 2026 at the earliest: Companies and other corporation tax payers
HMRC ran a consultation on this at the start of this year, asking for views on a proposed design for MTD for corporation tax.
It said this will not be mandated before 2026, but no official start date has been announced so far.
The proposed scheme would require all entities that fall within the corporation tax charge to maintain digital records on their income and expenditure, and use compatible software to submit an annual corporation tax return.
They would also need to provide quarterly updates to HMRC, although some entities would be exempt from this.
What do you need to do?
If you’re a Mayflower client, you’ve got nothing to worry about – we’ve got MTD in hand.
We work with Xero and Quickbooks, which are both compatible with the scheme’s requirements, and we’ve helped many of our clients to make sure they’re MTD-ready.
Cloud software isn’t the only way to comply with the rules, but we think it’s the best option both for ease of use and for improving your own business efficiency.
We run a cloud bootcamp for anyone who wants to get started with online accounting software, and we’re always happy to help if you have any questions.
We can help you to prepare for the next phases of MTD.