Making sense of what you need in place before the Making Tax Digital deadlines

by | Jun 28, 2023

If you’re unsure of how to prepare for the upcoming Making Tax Digital deadlines, you’re not alone. While Making Tax Digital (MTD) for VAT is now in full force, repeated delays to MTD for income tax self-assessment (MTD for ITSA) mean many taxpayers are in the dark about their obligations to HMRC.

In this article, we’ll help clear up some of the confusion surrounding the MTD timeline and explain how to navigate the new digital tax system. Let’s get started.

What is Making Tax Digital?

Announced back in 2015, Making Tax Digital (MTD) is part of the Government’s plans to digitalise the UK tax system. Under MTD rules, taxpayers must keep digital records and submit tax returns using MTD-compatible software.

According to HMRC, the scheme will help reduce the tax gap by improving the accuracy of digital records and making it easier for people to get their taxes right.

Making Tax Digital deadlines

Stage one: MTD for VAT

As of April 2022, all VAT-registered businesses must follow MTD for VAT rules. So what does that mean for you?

The rules surrounding who needs to register for VAT, deadlines for submitting VAT returns and which records to keep have not changed. However, you’ll now need to keep those records and submit your quarterly returns using MTD for VAT-compatible software.

You won’t need to register for MTD separately: businesses are now automatically signed up when they register for VAT.

Stage two: MTD for ITSA

While MTD for ITSA was originally supposed to launch in 2020, repeated delays and complications mean that self-assessment taxpayers won’t need to comply with the new rules until 6 April 2026 at the earliest.

What’s more, a proposed phased approach to MTD for ITSA means that only certain taxpayers will be affected at first.

Sole traders and landlords making more than £50,000 a year will need to comply with MTD for ITSA rules from April 2026 onwards, with those earning £30,000 and above following suit in April 2027.

As for everyone else, the Government is currently reviewing how MTD for ITSA can be adapted to meet the needs of smaller businesses and partnerships.

What do I need in place before the MTD deadlines?

While phased mandation for MTD for ITSA is still a few years away, there are some things you can do ahead of time to make sure you’re as prepared as possible.

Adopt cloud accounting software now

Why wait until the deadline to sign up for MTD-compatible software when you can reap the benefits of cloud accounting now? After all, many software providers have already developed software that connects with HMRC’s systems.

Embracing technology and keeping digital records won’t just help you stay compliant when the rules come into place: it’ll also make it easier to understand your business finances.

Familiarise yourself with new rules

Understanding your obligations is half the battle, so we’d recommend looking at the Government website and familiarising yourself with how MTD for ITSA will affect you. The better prepared you are, the smoother the transition to this new way of doing taxes will be.

Talk to your accountant

The road to tax digitalisation has been far from smooth so far, and there’s still a chance the MTD rules or deadlines could change again in the near future. What’s more, keeping up with the latest tax legislation is easier said than done when you’re busy running your own business.

So why not let an expert keep track of everything for you? As your accountants, we can help you stay up-to-date with the latest developments in Making Tax Digital so you don’t have to worry.

Not sure how to prepare for the Making Tax Digital deadlines? Get in touch with us today.


Ready to connect?

If you’re curious about how we can help you, please reach out: our team is very keen to hear from you.

Xero Platinum partner logo
ICAEW logo
ACCA logo
Quickbooks logo