Making Tax Digital (MTD) is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs.
HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world. MTD is making fundamental changes to the way the tax system works – transforming tax administration so that it is:
- more effective
- more efficient
- easier for taxpayers to get their tax right
HMRC’s vision to digitalise the UK tax system is well underway. The transformation started in April 2019 with MTD for VAT for businesses with taxable turnover above the VAT threshold.
End of the MTD ‘soft-landing’ period in April 2021
When MTD first came into force, HMRC implemented a ‘soft-landing’ period to allow businesses to get their digital links into place. During the soft-landing period, it is acceptable to copy and paste data for your VAT return and HMRC will not be issuing penalties during this period for not keeping complete digital records.
At the beginning of the pandemic, HMRC extended the soft-landing period, which was originally due to end in April 2020, to April 2021. As the soft-landing period is nearing its end, it is key for businesses to ensure that they have adequate digital links in place to ensure compliance with MTD rules.
It will no longer be considered acceptable by HMRC to copy/cut and paste data for your VAT return. Proper digital records and links will have to be maintained either using HMRC authorised accounting software or for businesses that maintain their records in a spreadsheet, an HMRC authorised API bridging solution.
The essential elements of MTD are:
- Businesses and organisations (which includes those with income from property) are required to maintain digital accounting records. Maintaining paper records ceases to meet the requirements of the tax legislation.
- Businesses and organisations are required to use a functional compatible software product to submit updates and returns to HMRC. The software uses HMRC’s API (Application Program Interfaces) platform to submit information to HMRC. The current HMRC online tax return services for the relevant tax are withdrawn when a business signs up to MTD.
Timeline for MTD
- From April 2019 – MTD for VAT became mandatory for VAT-registered businesses and organisations (including sole traders, partnerships, limited companies, non-UK businesses registered for UK VAT, trusts and charities) with taxable turnover above the VAT threshold. There was a six-month deferral of the start date, to 1 October 2019, for some more complex businesses.
- From April 2022 – MTD for VAT will be mandatory for all VAT-registered businesses and organisations.
- From April 2023 – MTD for income tax will be mandatory for some self-employed and partnership businesses and for some income tax payers with income from property. It will only apply to those with business income (turnover plus gross rental income) over £10,000. Much of the detail of the requirements is still unknown.
For more information about MTD for VAT visit https://www.cowgills.co.uk/news/making-tax-digital-for-vat/
Disclaimer
The information was correct at time of publishing but may now be out of date.
