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Everything you need to know about Making Tax Digital?

29 Jun 2023

What is Making Tax Digital?

Making Tax Digital (MTD) is a government initiative that aims to make it easier for businesses and individuals to keep track of their taxes. It does this by requiring businesses and individuals to keep digital records of their income and expenses, and to submit these records to HMRC using compatible software.

MTD was first introduced for VAT-registered businesses in April 2019. The government has since announced that MTD will be extended to self-employed individuals and landlords with incomes above £50,000 from April 2026. The income threshold for self-employed individuals and landlords will then be lowered to £30,000 from April 2027.

How will MTD affect businesses and individuals?

MTD is expected to have a number of benefits for businesses and individuals, including:

  • Making it easier to keep track of taxes. MTD will make it easier for businesses and individuals to keep track of their income and expenses by requiring them to keep digital records. This will help to reduce errors and make it easier to file tax returns.
  • Reducing the risk of fraud. MTD will make it more difficult for businesses and individuals to commit tax fraud by requiring them to submit their records to HMRC in real time. This will help to ensure that everyone pays the correct amount of tax.
  • Freeing up time for businesses and individuals. MTD will free up time for businesses and individuals by automating some of the tasks involved in filing tax returns. This will allow them to focus on other aspects of their businesses or personal lives.

What are the new timelines for MTD?

The government has announced that the new timelines for MTD are as follows:

  • Making Tax Digital for Income Tax (ITSA) for businesses with an annual turnover above £10m: Mandatory from April 2024.
  • Making Tax Digital for ITSA for businesses with an annual turnover between £85,000 and £10m: Mandatory from April 2025.
  • Making Tax Digital for ITSA for businesses with an annual turnover below £85,000: Mandatory from April 2026.
  • Making Tax Digital for ITSA for self-employed individuals and landlords with an income above £50,000: Mandatory from April 2026.
  • Making Tax Digital for ITSA for self-employed individuals and landlords with an income between £30,000 and £50,000: Mandatory from April 2027.

What are the next steps for MTD?

The government is currently working on developing the software that businesses and individuals will need to use to comply with MTD. They are also working on providing guidance and support to businesses and individuals who are affected by MTD.

The government is committed to making MTD a success and believes that it will have a positive impact on the UK tax system. They are confident that MTD will make it easier for businesses and individuals to keep track of their taxes, reduce the risk of fraud, and free up time for businesses and individuals to focus on other aspects of their lives.

Is there anything else I should know about MTD?

Yes, there are a few other things you should know about MTD:

  • You can start using MTD voluntarily before it is mandatory. This can help you to familiarise yourself with the system and to ensure that you are ready to comply when it becomes mandatory.
  • There are a number of software providers that offer MTD-compatible software. You can find a list of these providers on the HMRC website.
  • If you are unable to use MTD, you may be able to apply for an exemption. The criteria for exemption are complex, so you should contact HMRC if you think you may be eligible