Making Tax Digital (MTD) originally came into force from April 2019 in a bid to transform tax administration. There are now extensions to MTD being introduced which may affect those that are not currently required to follow the MTD rules. The information below sets out the MTD timeline for VAT, income tax and corporation tax.
MTD extension for VAT – April 2022
From April 2022 MTD for VAT will be obligatory for organisations who previously registered voluntarily for VAT (i.e. whose turnover is below the registration threshold – currently £85,000). Depending on your circumstances, you may need to change the way your records are kept and submissions of VAT are made.
MTD extension for Income Tax – April 2023
From April 2023 MTD for Income Tax and Self Assessment (ITSA) will come into force. This is the most significant tax reporting change since the self assessment regime was introduced in 1996.
It will affect sole traders, partnerships (but not LLPs) and unincorporated landlords, where the turnover (or gross rent) is more than £10,000 per year. The £10,000 threshold is not ‘per business’, so if you operate as a sole trader and are a landlord, you will have to comply with the requirements of the scheme if the turnover of the two operations exceeds £10,000.
The regime will involve submitting in-year quarterly accounts figures to HM Revenue & Customs, with a fifth submission after the year-end. This will bring the four submissions into line with your ‘final’ accounts, together with any other tax information, ending the need for a tax return for anyone in the MTD for ITSA regime.
Each quarterly submission will prompt HMRC to issue an in-year tax estimate. This will NOT be a tax demand, just a guide to help you monitor your tax position. Submissions have to be made using ‘compliant software’, but this could be directly via accounting software or via ‘bridging software’ if you use spreadsheets to record your financial information.
Further information on the MTD extensions can be found on the Government website here.
MTD extension for Corporation Tax – April 2026
Limited companies will not have to comply with this regime until April 2026 (at the earliest, per the current guidance). HMRC has published a consultation on MTD for corporation tax which confirms its plans for rolling out MTD.
For clarity, requirements relating MTD for VAT already apply to limited companies.
What action do I need to take to plan for MTD?
Before you sign up to MTD you will need to make sure you have MTD compatible software. Information about different accounting software can be found on our website here. You can also find the government advice on finding software for MTD below.
When to take action for the MTD
This might feel like some way off, but it will come round soon enough. Each business’ circumstances are unique – plan how this will affect your operations, and discuss the impact with us.
For further details, please contact John Skinner, on 01295 270200 or johns@whitleystimpson.co.uk.