Making Tax Digital

 

What is Making Tax Digital?

Making Tax Digital is the government’s programme to transform the tax system and move it fully online. MTD is part of HM Revenue & Customs (HMRC) wider digital strategy to make it easier for individuals, businesses and other organisations to ensure their tax affairs are in order.

The driving force behind the belief within HMRC that taxpayer errors result in a significant proportion of the tax gap, the difference between the tax paid and tax due, and that poor record keeping is a major contributing factor to these errors.

It will therefore require businesses, other organisations and individuals to keep their records digitally, using either bookkeeping/accounting software or at the very least on spreadsheets. By doing so, HMRC believe that errors will be reduced and, with them, the tax gap.

When does it come into effect?

From April 2019 VAT Registered businesses/organisations with a turnover of more than £85,000 will be required to adopt and comply with Making Tax Digital.

Will it affect you or your organisation?

If you currently do a tax return or VAT returns, then the simple answer is yes.

Even if you or your organisation or business do not fall within the criteria for digital record keeping and quarterly submissions in April 2019 or April 2020 then your interaction with HMRC will still become more digital.

Making Tax Digital deadlines

HMRC is introducing Making Tax Digital gradually. Making Tax Digital for VAT started from 1 April 2019, affecting VAT-registered businesses with a taxable turnover above the VAT threshold of £85,000.

Next all VAT-registered businesses will need to comply with Making Tax Digital for VAT from April 2022.

And from April 2023, Self Assessment taxpayers will need to comply with Making Tax Digital for Income Tax.

Here are the Making Tax Digital deadlines:

  • April 2019: VAT-registered businesses with a taxable turnover above the VAT threshold of £85,000 need to keep digital records and submit digital VAT returns using compatible software. Some ‘more complex’ businesses were given a six-month deferral (read more below)
  • October 2019: more complex businesses who were deferred need to comply with MTD
  • April 2022: MTD will be compulsory for businesses with a turnover below the £85,000 VAT threshold
  • April 2023: MTD will apply to taxpayers who file Income Tax Self Assessments for business or property income of more than £10,000 a year

‘More complex’ businesses include trusts, ‘not for profit’ organisations that are not set up as a company, VAT divisions, VAT groups, those public sector entities required to provide additional information on their VAT return (such as government departments and NHS Trusts), local authorities, public corporations, traders based overseas, those required to make payments on account and annual accounting scheme users.