The UK's tax system is undergoing a major rehaul with the Making Tax Digital (MTD) initiative. With modernisation of the tax administration in mind, MTD aims to make the tax process more straightforward and efficient. Here's an overview of the recent and upcoming changes:
MTD for VAT
Since April 2022, all VAT-registered businesses, regardless of turnover, have been required to:
- Maintain digital records: Keeping digital records of all VAT transactions.
- Submit VAT returns digitally: Using MTD-compatible software to file VAT returns directly to HMRC.
This move ensures that businesses maintain accurate records and streamline their VAT reporting processes.
MTD for Income Tax Self Assessment (ITSA)
The rollout of MTD is extending to Income Tax with the following timeline:
- From April 2026: Self-employed individuals and landlords with annual business or property income over £50,000 will need to comply. It is important to note that this threshold is based on total turnover, not just profits or earnings.
- From April 2027: The threshold lowers to include those with income over £30,000.
Under MTD for ITSA, affected taxpayers will be required to:
- Keep digital records: Recording income and expenses digitally.
- Provide quarterly updates: Submitting updates to HMRC every three months.
- Submit a final declaration: Confirming income and expenses at the end of the tax year.
These changes aim to reduce errors and provide a more real-time view of tax liabilities.
Preparing for the changes
To ensure a smooth transition:
- Adopt MTD-compatible software: Utilise accounting software that aligns with MTD requirements to manage records and submissions efficiently.
- Stay informed: Keep on top of updates from HMRC regarding MTD to ensure timely compliance.
- Seek professional advice: Consult with tax professionals to navigate the complexities of MTD and optimise your tax processes. We are here to help if you have any questions or concerns, contact us for a friendly chat to see how we can be of service.
Helpful links:
HMRC Making Tax Digital
HMRC MTD for ITSA for sole traders and landlords