What is Making Tax Digital (MTD)?
MTD is a scheme introduced by the UK government scheme to make tax administration easier and more efficient. Launching in stages for different types of tax return, it changes the way that businesses and individuals submit their figures to HMRC.
What will change under MTD rules?
Rather than submitting tax returns annually, taxpayers will instead submit their figures to HMRC on a quarterly basis, using specialist approved software.
It doesn’t mean submitting four tax returns each year. Instead, taxpayers will use the software to manage their bookkeeping and send updates, and then submit a final return.
Why is MTD being introduced?
The existing system of submitting an annual tax return is not very efficient, with avoidable mistakes costing HMRC over £9 billion every year. With many businesses already banking, invoicing, and paying bills digitally, it makes sense for HMRC to introduce a modernised tax system which reflects this.
The good and bad bits about MTD
In reality MTD will probably help businesses. The existing process of submitting tax data can be disruptive and stressful, so using a digital system to record information ‘as you go’ is likely to be easier. And really, making sure all your bookkeeping records are up to date is only a good thing.
Lots of cloud-based bookkeeping software providers now include MTD features, so that everything is integrated. For technophobes, the idea of learning MTD software might be overwhelming, but some systems are incredibly easy to use, with sophisticated tools to help you save time and avoid any nasty mistakes.
For instance, using bank feeds to import information from bank accounts, or tools that allow you to send and follow up on invoices automatically. It means you spend less time on data entry, and you’re less likely to forget about, or lose, receipts – so your tax bill might look a bit nicer.
The MTD timeline
To help taxpayers get ready for the transition, Making Tax Digital is being introduced in stages, so it becomes mandatory for different groups at slightly different times.
- 1st April 2022 – MTD for VAT becomes mandatory for all VAT registered businesses
- 6th April 2024 – MTD for Income Tax Self-Assessment (MTD ITSA)
- 2026 – MTD for Corporation Tax (though this is still very much in the consultation stage!)