Making Tax Digital

Making Tax Digital Explained

Since 2017, the Making Tax Digital (MTD) initiative has been systematically rolled out by HMRC. Most business people are aware of it, and most have already adopted a digital accounting platform for their businesses.

MTD has been making big changes to the way the UK tax system works, and several significant milestones have been passed so far. HMRC’s aim is to transform tax administration in order to make it:

  • more effective
  • more efficient
  • easier for taxpayers to get their tax right

The current situation

Most VAT-registered businesses with a taxable turnover of £85,000 or more now have to maintain digital VAT records, and tax returns must also be submitted via MTD-compatible software.

What’s coming next?

April 2022
VAT for all businesses

From April 2022, all businesses that are registered for VAT must keep their VAT records in digital form.

Any software can be used for this purpose, including a combination of spreadsheets and accounting packages. However, if spreadsheets are used, the accounting package must be able to extract the relevant information from them electronically, in order to be sent on to HMRC without any manual adjustment. The VAT payment deadlines will also not change.

April 2023
Income Tax changes

From April 2023, the MTD rules will apply to Income Tax Self-Assessment (ITSA) for landlords and unincorporated businesses with total property or business income that exceeds £10,000 a year.

Every quarter, landlords and businesses paying income tax according to MTD will need to submit their income and expenses to HMRC using software that is MTD-compatible. This will generate an estimated tax calculation, which will form the basis for their budgeting for tax payments. This estimate will be based on the information entered. It will not be subject to any tax-relievable payments (pension contributions or gift aid for example) or any tax due on other income, for instance from capital gains or investment income derived elsewhere.

Are your accounts digital yet?

If you are self-employed and run a smaller enterprise that is under the VAT threshold, now is the time to act. 2022/23 is not far away and it would be worth becoming familiar with MTD ahead of time. Familiarity with the required software should not be left to the last minute.

If you are just setting out as self-employed, you should engage in digital tax recording and submission from the outset. This will avoid having to switch over later on.

You may need to act

If you haven’t already adopted a digital accounting platform, time is running short. Speak to your accountant about MTD and which platform would suit your needs best.

If you are considering moving your accounts to the cloud, or from one cloud accounting platform to another, Movemybooks can probably help. Check our pages for moving to Xero, Sage or Quickbooks for more details.

Are you an Accountant?

As HMRC continues to change its reporting requirements, your clients may take the opportunity to change their accounting software. Movemybooks can help you when clients need to migrate data from older desktop software to new cloud accounting platforms.

Moving from non MTD1 software

Movemybooks can migrate data from Sage and Quickbooks desktop software. You and your client just need to decide the right MTD-compliant software for them and Movemybooks can help you migrate the data easily.

Preparing for the changes to ITSA in April 2023

The forthcoming changes around income tax self-assessment for property and business related income may also mean it’s a good time to change software. Select a system that works best for your client and that allows you to work on their tax more efficiently. If you have over 30 conversions to complete at once, please contact us as we may be able to help you out.

Want to know more?

MTD is an ongoing initiative by the UK Government’s HMRC.
Please visit the UK Government’s website to check the latest updates on the roll-out of MTD.