Making Tax Digital (MTD) Overview

Making Tax Digital (MTD) represents a significant shift in how taxpayers interact with HMRC. The scheme is already in place for VAT and will extend to income tax in April 2026.

Latest Updates on Making Tax Digital (MTD)
On December 19, 2022, the government announced that self-employed individuals and landlords will have more time to prepare for MTD for Income Tax Self-Assessment (ITSA).

From April 2026, self-employed individuals and landlords with an income of over £50,000 will need to keep digital records and provide quarterly updates on their income and expenses using MTD-compatible software. Those with an income between £30,000 and £50,000 will need to comply starting April 2027. Many taxpayers can opt in voluntarily before these dates to reduce errors and simplify tax management.

A review will also be conducted to address the needs of smaller businesses, particularly those under the £30,000 income threshold, to tailor MTD for ITSA to their requirements.
MTD for VAT

Introduced on April 1, 2019, MTD for VAT requires businesses with a turnover exceeding the VAT threshold (currently £85,000) to file digital VAT returns. From April 2022, all voluntarily registered businesses and newly VAT registered businesses must also comply with MTD rules.

What is MTD?

MTD for Income Tax

MTD for Income Tax
The next phase of HMRC’s digital transformation is MTD for Income Tax and Self-Assessment (ITSA), set to begin on April 6, 2024. Sole traders and landlords with a total business or property income above £10,000 annually will need to follow MTD rules and file digital income tax self-assessment returns.

MTD for Corporation Tax
After a consultation, the government plans to pilot MTD for Corporation Tax from 2024, with mandatory implementation not expected until at least 2026.

Impact of Making Tax Digital (MTD) on Small Businesses
If you’re a sole trader or landlord with an annual income exceeding £10,000, MTD will change how you maintain financial records and file your tax return. This includes using MTD-compatible software for digital record-keeping and making regular tax submissions.

For multiple businesses, the total combined income will determine whether MTD rules apply.

From April 2024, you must use MTD-compatible software to:
• Submit four quarterly updates on income and expenses to HMRC.
• File an End of Period Statement (EOPS).
• Submit a Final Declaration at the tax year’s end.

If your income is below £10,000 annually, you will continue using the current system.

Making Tax Digital for Sole Traders and Landlords
MTD for ITSA requires more administration than the previous system, making precise record-keeping essential. Cloud accounting software simplifies this process, and Uptax can assist with your transition.
You will need to submit quarterly reports and an EOPS for each business. For instance, if you are both a sole trader and a landlord, you must make two submissions each period if their combined income exceeds £10,000.

VAT-Registered Sole Traders and Landlords
If you’re already using MTD-compliant software for VAT, transitioning to MTD for income tax should be smoother.

Making Tax Digital for Limited Companies
VAT-registered businesses must comply with MTD for VAT. The current VAT threshold is £85,000 annually, but businesses below this threshold can also register for VAT. Limited companies are required to file annual Corporation Tax returns to HMRC. MTD for Corporation Tax is not expected until at least 2026, but a pilot scheme will start in 2024.

Making Tax Digital Timeline:
• April 2019: MTD for VAT became mandatory for VAT-registered businesses.
• From 2024: Pilot scheme for MTD for Corporation Tax begins.
• April 2024: MTD for self-assessment income tax becomes mandatory for sole traders and landlords with incomes over £10,000 annually.
• From 2026: MTD for Corporation Tax will apply to limited companies.

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