Introduction to Making Tax Digital

Making Tax Digital (MTD) is an HMRC initiative to ensure UK tax is entirely digitised. It aims to make the tax system more effective, efficient, and straightforward for taxpayers. This article delves into the specifics of MTD, its timeline, and how it will impact businesses, landlords, and the self-employed.

What is Making Tax Digital (MTD)?

Launched by HMRC, MTD is a UK initiative to turn the tax system into a fully digital model. Everything from VAT to income tax self-assessment will be managed online through compatible software.

When was MTD introduced?

The introduction of Making Tax Digital started in April 2019 with Making Tax Digital for VAT for businesses over the VAT threshold. This move made it mandatory for VAT-registered businesses to keep digital records and submit VAT returns using MTD-compatible software.

Who does MTD affect?

MTD affects a range of tax-paying entities. From April 2026, self-employed people and landlords with an income above a specific threshold were required to follow MTD for Income Tax Self-Assessment (MTD ITSA). Regardless of turnover, all VAT-registered businesses must comply with MTD for VAT from April 2022.

What is MTD for VAT?

MTD for VAT has already been implemented, and since April 2019, VAT-registered businesses with a turnover above the VAT threshold are required to keep digital VAT records and submit their VAT return through MTD software.

How do I prepare for MTD for Income Tax?

Businesses and individuals must prepare for MTD for Income Tax by using digital tools to record income and expenses. Using MTD-compatible software is also essential.

How does MTD impact landlords?

MTD affects landlords by requiring them to digitally record their income and expenses and submit them to HMRC using compatible software. This new rule applies to landlords with an income over a specific threshold.

What is MTD for Corporation Tax?

The MTD for Corporation Tax is planned for introduction in April 2026. This will make it obligatory for corporations to use MTD-compatible software to keep digital records and submit their Corporation Tax returns to HMRC.

What is the MTD timeline?

The MTD timeline has been planned in stages. It began with MTD for VAT in April 2019, followed by MTD for ITSA in April 2026 for businesses and landlords with income above a specific threshold. Lastly, MTD for Corporation Tax is expected in April 2026.

How do I sign up for MTD?

Signing up for MTD involves using the online services provided by HMRC. After signing up, you must keep digital tax records and submit your tax returns using MTD-compatible software.

Key Takeaways

• MTD is revolutionising the tax system in the UK, starting with MTD for VAT and expanding to income tax and corporation tax.
• MTD mandates using digital records and compatible software for reporting and submitting tax returns.
• Landlords and self-employed individuals are next in line for MTD, with MTD ITSA slated for introduction in April 2026.
• To sign up for MTD, businesses and individuals must ensure they have the necessary software.
• The key to preparing for MTD for income tax is becoming familiar with MTD-compatible software and digital record keeping.