Making Tax Digital

Why do we need MTD?

HMRC make the case that people should be leaving behind paper records or spreadsheets in favour of more reliable and accurate electronic software which can link to their systems. Their expectation is that using this software will deliver accurate calculations of tax liabilities and timely payment of what is due.

What sort of software is needed?

This ‘compatible software’, recognised by HMRC and available from many commercial providers, must be able to link directly to HMRC and provide for the uploading of data relating to the tax liabilities of these individuals and businesses. MTD software should provide HMRC with regular quarterly submissions of business income and expenses with an end of year statement and declaration by the taxpayer. 

When is MTD being implemented?

Contractors and other business owners who trade through their own limited companies and who are VAT registered (because, for example, their turnover is in excess of £85,000 per year) will be aware that they are already participants in the ‘MTD for VAT’ system with income and expenditure details being uploaded as part of their monthly or quarterly VAT Return filing obligations.

MTD for VAT became mandatory for all VAT-registered businesses (sole traders and limited companies) over the threshold in April 2019 and this has been extended from April 2022 to all VAT-registered businesses. The HMRC online VAT Return Portal closed on 1 November 2022 and Returns can now only be filed via MTD for VAT software.

What other taxes will be affected and when?

From April 2026 MTD for Income Tax and Self-Assessment will come into force, affecting all self-employed individuals with a turnover of more than £50,000, including landlords with income from property letting in excess of that figure. From April 2027 the minimum income threshold will be reduced to £30,000 to bring more individuals into MTD. A review into bringing those below this threshold into MTD will be carried out. Although a timeline is not currently known, there is an intention that MTD for partnerships and MTD for corporation tax will also be introduced. 

HMRC now receives personal financial data for individuals directly from an ever-widening variety of sources such as employers, pension companies, banks, and other financial institutions. So, it’s likely that the process or even the need to file a Self Assessment tax return may be reviewed and overhauled soon.

How can I find out more about MTD?

PayStream has been involved with MTD from the outset. Please contact us directly for further advice on MTD and how it may impact your business.