MTD started in April 2019, covering VAT, Income Tax and Corporation Tax.
VAT
This initially started with VAT return submissions from 1st April 2019. From this date all VAT registered businesses (both incorporated and unincorporated) that turnover more than £85,000 needed to keep records digitally and submit VAT returns to HMRC using MTD-compatible software. From April 2022 this became mandatory for ALL VAT registered businesses.
More than 99% off all VAT returns are currently sent to HMRC electronically. But this will no longer be enough to be MTD compliant.
Income Tax
MTD for ITSA (Income Tax Self Assessment) will become mandatory for income tax records and submissions (self-assessments), in April 2026. This includes self-employed, partnerships, trusts and landlords completing self-assessments. This date was initially set for 2024, but HMRC have delayed the move. The government says it understands that self-employed sole traders and UK landlords are “currently facing a challenging economic environment, and the transition to Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA) represents a significant change for taxpayers.
Corporation Tax
The timings for MTD for limited companies submitting their corporation tax returns is yet to be confirmed, but it will not be mandatory before April 2024. We'll keep you updated on any changes.
Businesses must use software that can connect to HMRC’s systems via an Application Programming Interface (otherwise known as an API) to comply fully with MTD and must be able to:-
Keep and preserve digital records in accordance with MTD regulations
Create a VAT return with digital information held by the software in order to send this information electronically to HMRC
Provide certain VAT data albeit on a voluntary basis to HMRC
Receive information from HMRC via the API platform with regard to an entity’s compliance with obligations under MTD regulations.
You can also find further information provided on the HMRC’s website.
There are a few exemptions to MTD which we’ve noted below.
There are some exemptions for those who are not able to engage digitally for religious reasons or due to factors such as age, disability or location (no broadband availability for example). These are the same exemptions as the current exemptions for VAT online filing. So you’ll know if that applies to you.
When MTD for income tax becomes mandatory there will be an exemption for businesses and landlords with a very small turnover, however this level has not yet been set.
If you’re already a client of The Business Hut, there’s nothing you need to do. Your business accounts are already MTD compliant using the beautiful accounting software, Xero. All future submissions will need to be submitted directly through Xero- which it’s already capable of doing. Clever huh!
As your bookkeepers we will support you through these changes and provide any ongoing services that you need.
If your business currently uses a software package for all VAT records, then you need to check that the software is MTD-compliant and that you are using an up-to-date version that is MTD-compatible. Assuming the package is MTD compliant, then there should be minimal changes that you need to make under MTD.
However, if the software you use is not compliant, then you will need to look at what options are available to you to comply under MTD – and we’d suggest you do this well in advance of the deadlines!
If your business does not currently use software to maintain records, the new MTD regime will mean you may need to make significant changes to your business systems and working practices to allow you to move from a manual to a digitalised process.
