Click here to register your interest in signing up to the HMRC MTD ITSA pilot

Making Tax Digital

With some important changes to UK tax legislation on their way, we’ve compiled a comprehensive guide to Making Tax Digital (MTD) to help answer the most common questions.

Want to find out more? Book a free consultation with one of our MTD experts.

What is Making Tax Digital?

Making Tax Digital (MTD) is one of the largest and most significant changes to tax legislation for decades, with a major impact on accountants and their clients. It is a shift in how the tax system works, fulfilling HMRC’s ambition to become one of the most digitally advanced tax administrations in the world.

For businesses small and large, individuals and the accountants supporting them, MTD is meant to be an efficient, effective and easier way to get tax right. In reality, there is a lot to learn, new procedures to follow, and much more to come as HMRC’s Making Tax Digital timeline progresses.

 

Which taxes are going digital?

VAT

All VAT-registered businesses, regardless of turnover. Those above the threshold (£85,000) are already required to follow HMRC’s MTD rules. VAT-registered businesses with a taxable turnover below the threshold will come on board in April 2022.

Income tax self-assessment

Self-employed businesses and landlords with annual business or property income above £10,000 will come on board from April 2024. A self-employed MTD pilot will begin in in April 2022.

Partnerships

MTD for general partnerships (i.e. not limited liability partnerships) has been delayed until April 2025, with no pilot plans. MTD for all other Partnership types has been delayed until after April 2025.

Corporation Tax

The Government will give businesses the opportunity to take part in a pilot for MTD for Corporation Tax and will not make this mandatory for some time – expected to be after April 2026 but before 2030.  

Where are we so far?

MTD for VAT took effect in April 2019, becoming mandatory for all businesses with turnover above £85,000. In Summer 2020, HMRC said so far, more than 1.4 million taxpayers have been successfully using digital VAT – including over 30% of VAT-registered businesses with turnover below the VAT threshold who have joined voluntarily.

  • Pilot schemes started way back in 2018, with MTD for VAT beginning in earnest in April 2019, mandatory for all businesses with turnover above £85,000.
  • April 2021 saw the end of third-party filing for non-VAT registered businesses, with the Business Tax Account becoming the designated channel.
  • At the same time, the soft-landing period ended, and HMRC required full digital links between VAT figures and the original source transactions.
  • Delays have hit; MTD for Income Tax was postponed a year due to the pandemic, giving businesses a helpful reprieve and allowing more time for HMRC to run pilot schemes.

What are the challenges?

For individuals and businesses paying tax, the way they file their taxes is a more complicated process than they have been used to.

There are a range of challenges, which accountants can help them to overcome. However, with some of the more complex stages yet to come, there is scope to think ahead and make the best out of the extra time.

These include:

  • All records must be kept digitally
  • Digital record keeping includes land and property income
  • Filing must be carried out every quarter, rather than once per year
  • All other income for an individual will be incorporated into the MTD submission process, including: pension relief contributions, dividends, bank interest, pensions received

Which clients need a solution?

Accountants may have clients affected by the extension of Making Tax Digital in the following categories:

  • VAT-registered business
  • Self-employed people / Sole traders
  • People running a partnership
  • People receiving land or property income

What are the solutions?

  • Specialised MTD tax software
  • Bookkeeping software
  • Bridging software
  • Receipt capturing tools

What does IRIS offer?

IRIS Personal Tax enables you to complete self-assessment tax returns and P11D forms with ease and file online. This simple MTD software is designed for partners of UK accountancy practices and tax agents, it is compatible with HMRC’s Making Tax Digital Income Tax Pilot.

When bookkeeping software does not meet your complex digital VAT cases, our MTD bridging software enables you to make VAT submissions to HMRC with ease and helps you comply with Making Tax Digital (MTD) mandates.

An app led service that will solve that age-old problem of clients swamping you with big bags of receipts. IRIS Snap eliminates time wasted on keying in data from paper records and reduces the increasing burden of quarterly MTD VAT.

KashFlow is a cloud-based bookkeeping software that caters to businesses of all sizes. Features include invoicing, estimation, credit control, accounting, purchase management, payroll and reporting. These features make it excellent software for making tax digital.