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From April 2022, Making Tax Digital (MTD) filing will be compulsory for all VAT-registered traders and from April 2023 for most self-employed traders and individual landlords.

MTD for VAT

Currently, only VAT registered businesses with a taxable turnover of over £85,000 are required to be MTD compliant. However, from April 2022 all VAT-registered businesses with a taxable turnover below £85,000 will be required to keep their VAT records in a digital format and use MTD compatible software to file their VAT returns for periods starting on and after 1 April 2022.

This is expected to affect one million VAT registered businesses who are currently exempt from MTD rules due to being below the £85,000 threshold.

MTD for Income Tax

From April 2023, self-employed businesses and landlords with an annual income over £10,000 will have to keep digital records and file quarterly reporting through MTD software as part of MTD for Income Tax.

This will affect around four million unincorporated businesses and landlords. Some businesses are already complying with the MTD for Income Tax rules as part of a pilot test to develop the system.

If you are a self-employed business or landlord you can voluntarily keep business records digitally and send Income Tax updates to HMRC instead of filing a Self Assessment tax return.

MTD for Corporation Tax

A consultation document on MTD for Corporation Tax will be published in the autumn.

Tax administration strategy

The amends were announced as part of a Tax Administration Strategy on 21 July.

Part of this is to make the timing and frequency of tax payments more “real time” to align with the reporting of tax information. While real time tax reporting under MTD can be introduced without changing tax payments, the technology infrastructure technology will have to be updated to introduce real time tax payments.

The strategic plan also looks to identify a range of reforms to the UK’s tax system. The plan implies that personal and business tax accounts and business tax account will be merged and states, “Taxpayers should be able to view their tax position and tell HMRC anything it needs to know through a single online account.”

For help and advice with MTD, contact Ann Bibby on abibby@ellacotts.co.uk or 01295 250401.