Four years on from the first consultations in respect to Making Tax Digital (MTD), HMRC has continued to forge ahead with its ambition to become one of the most digitally advanced tax administrations in the world. In its most simple terms, MTD involves using compatible software to manage certain tax submissions to HMRC.

Within this last year, further announcements have been made to outline the next steps along the path of compliance for existing and new taxes, moves that will see most businesses integrating with MTD in some form within the next 5 years.

MTD for VAT

The initial mandating of MTD for VAT, which took place in April 2019 for businesses with a taxable turnover above £85,000, has seen over 1.4 million businesses signed up and more than 4 million returns filed under the new system. 

One of the key legislative steps under MTD was for businesses to integrate ‘digital links’ into their accounting processes, which mandated that data transferred between systems would need to be completed ‘digitally’ via software integrations. Initially given a soft-landing delay of 12 months to get systems updated. The ongoing COVID-19 outbreak became a deciding factor to extend this by another 12 months, meaning ‘digital links’ must now be in place by the first return after 1 April 2021. 

HMRC have now announced further plans to extend MTD for VAT legislation for all VAT registered entities by their first return beginning on or after 1 April 2022. Whilst HMRC report that 280,000 businesses under the VAT threshold have already voluntarily signed up to MTD for VAT, the extension is expected to affect a wide range of smaller entities who are more likely to currently use ‘manual’ processes which will no longer be compliant under MTD.

MTD for Income Tax

Pilot testing of MTD for Income Tax has been active since March 2018 and finally this year HMRC released their intentions for the first stage full-roll out of the service. Self-employed businesses and landlords with an annual business or property income above £10,000 are now set to come under MTD for Income Tax rules from their first accounting period on or after 6 April 2023.

Similar to MTD for VAT, the pilot testing will continue up to this date and HMRC expect further functionality to become ‘live’, allowing a wider scope of businesses to voluntarily sign up if they wish to do so.

MTD for Corporation Tax

Initially outlined as one of the potential first taxes to come under MTD, corporation tax has since evaded any major progress up until now. Within the last month however, HMRC has announced and opened a public consultation on the implementation of MTD for Corporation Tax. This proposed dates for pilot testing to begin from April 2024 and confirmation that the earliest date for compulsory mandating will be April 2026.

What Steps to Take Now

If you or your business fall into any of the confirmed upcoming implementation dates for VAT or Income Tax, we strongly recommend you review your accounting systems as soon as practical to ensure you have assessed what changes may be required to ensure MTD compliance.

Further articles will also be being released shortly in respect to each of the major announcements, therefore you can stay fully up to date of these and any development by connecting with us on Twitter, Facebook or LinkedIn (see icons at top of screen).

Thomas Westcott has been at the forefront of assisting businesses to correctly assess their accounting processes and successfully transition over to MTD compliance methods. If you would like a review, of how your business could be impacted, please contact your local Thomas Westcott office.

By Stuart Pedlar, Manager