Making Tax Digital (MTD) came into effect in April 2019 and aims to revolutionise and simplify how businesses record their tax and help the UK to become one of the most digitally advanced tax administrations in the world, but how clued up are you on the MTD timeline?
MTD is designed to eliminate paper-based processes and reduce the amount of work for taxpayers and businesses, making tax and VAT more manageable and easier to understand. Reducing the amount of errors when recording or submitting VAT returns is also key, as they can often lead to under or over payments of tax, penalties, and interest charges.
With the insurgence of online banking, paying bills online and accountancy software, these days everything is just at the click of a button, so it makes sense that reporting tax should digitise – making the process of recording and submitting VAT returns for businesses much simpler.
MTD timeline – key dates you need to know
If you’re a VAT-registered business with turnover of over £85,000, then you should have been keeping digital records and filing VAT returns via MTD-compliant software since April 2019.
HMRC now plans to bring other taxes such as income tax and corporation tax under MTD.
Here’s a timeline to demonstrate how MTD will be rolled out over the next few years.
- April 2019: Keeping VAT records digitally was required by all businesses that were VAT-registered with a taxable turnover above the VAT threshold. VAT returns now have to be sent using functional compatible software. For more complex businesses there was a six-month deferral to the 1 October 2019.
- April 2021: There is now a requirement for all VAT-registered businesses to have digital links with multiple compliant software.
- April 2022: All VAT records will need to be kept digitally for all VAT-registered businesses and organisations, no matter their turnover, and will need to send VAT returns using compatible software.
- April 2024: MTD for income tax self-assessment (ITSA) – this date has been put back from April 2023 but will require all self-employed businesses and landlords with business or property income over £10,000 to adhere with MTD – recording VAT digitally and sending VAT returns using compatible software – from that revised date going forwards.
- April 2025: Applying to those with business income (turnover plus gross rental income) over £10,000, for any partnerships with business or property income that only have individuals as partners it will be mandatory to record business tax records digitally and send quarterly summaries of their income and expenses to HMRC using compatible software. Due to the delay in the introduction of MTD for VAT, the April 2025 date does not include more complex partnerships, for example, LLPs / mixed or corporate partnerships. We are still waiting for confirmation of when this date will be announced.
- April 2026: There have been numerous delays to the MTD ITSA being announced and so it is still unclear if MTD for corporation tax will take place in 2026. We constantly monitor for announcements and will keep you up to date once we know when it will come into force. We expect MTD for corporate tax to become mandatory from this date, however, all incorporated businesses should still record business tax digitally and send the HMRC quarterly summaries of income and expenses using compatible software.
Making Tax Digital income pilot
A pilot is currently being rolled out for MTD Income Tax, so for now it’s just voluntary, but if your business signs up to MTD now you will no longer need to complete a self-assessment return.
Discussions are currently taking place with HMRC and accountants around the frequency of when tax and VAT is paid, and the Chancellor recently announced a new points-based penalty system from 1 April 2022 that will apply to returns and payments under MTDfV.
So, we could see in the next 10 years, once MTD has been fully rolled out, businesses paying business tax on a monthly or quarterly basis rather than annually.
For more information about MTD and advice on how to start recording your tax and VAT digitally, head here, or drop us a line by e-mail hello@itsrelative.co.uk or call 01484 441431.