Making Tax Digital (MTD) is HMRC’s plan to digitise the tax system for VAT, Income Tax Self Assessment and Corporation tax.
Since April 2019 MTD for VAT has been mandatory for businesses with income above the VAT registration threshold of £85,000.
From 1 April 2022, all VAT registered businesses must begin to file their VAT returns under MTD.
What are the requirements of MTD?
You will need to use MTD compatible software to prepare and lodge VAT returns
MTD compatible software simply means that it can integrate with HMRC systems to send VAT returns to HMRC. You do not need to keep any additional business records because of MTD. However, business records must be kept digitally to be compliant. The information contained within the MTD VAT return will be generated by pulling information directly from the digital records. If you are using spreadsheets to record transactions then you will need to use bridging software in order to file the return. Alternatively you can use MTD compatible software such as Xero or Sage. The VAT return is filed from your accounting software/bridging software rather than via the HMRC online service.
You need to sign up to MTD
This can be done via your business tax account or as agent, we can do this for you. In signing up to MTD you need to confirm that you have compatible software. Once signed up, HMRC will send a confirmation email after which you can then file the return using the MTD compliant software. The timing for signing up should be after you have paid your last non MTD VAT return and at least 7 days before the filing deadline of the MTD return. So if your VAT quarters are March, June, September and December your first MTD return will be for June 2022. You should sign up after payment of the March 2022 VAT return and before 30 June.
When will other taxes become digital?
The next phase of MTD is due to commence in April 2024 when MTD for Income Tax Self-Assessment will be introduced for all self employed business owners and landlords with annual income over £10,000. Partnerships will be next in line from April 2025 followed by Corporation tax which won’t be introduced until at least April 2026.