The road ahead for Making Tax Digital – are you ready?

Aug 20, 2021 | business advice, cloud accounting, tax advice

Making Tax Digital (MTD) is rolling out pretty fast now with some personal income taxpayers due to be brought into scope from April 2023. But what exactly is it and, more importantly, what do you need to do to get ready?

In short, MTD is the Government saying, right, enough with the paper records – everyone needs to go digital and get online.

HMRC has said it wants the UK to be “one of the most digitally advanced tax administrations in the world”, with businesses and individuals recording and reporting their finances entirely within electronic systems.

Why? They say it’s because they want to “make it easier for individuals and businesses to get their tax returns right the first time around”. That’s a polite way of saying they want to reduce opportunities for the numbers to be massaged on the way to evade tax.

Along with the construction industry scheme (CIS), designed to tackle cash-in-hand culture, and the domestic VAT reverse charge, supposed to reduce VAT fraud, the Government really wants to close every loophole.

What’s the timeline?

In April 2019, MTD for VAT kicked in, obliging most VAT-registered businesses with taxable turnover above the VAT threshold of £85,000 to start using HMRC-approved software to keep VAT records.

From April 2022, MTD for VAT will expand to cover all VAT-registered businesses, regardless of size or turnover.

Next up, from April 2023, it’s MTD for income tax self-assessment, also known as MTD for ITSA. This is a big one. It means self-employed businesses and landlords with business or property income of £10,000 or more will get roped into MTD.

Things get a bit foggier after that but we do know that MTD for corporation tax will come into effect some time from 2026 onward. HMRC has also said it’s going to launch a voluntary pilot for MTD for corporation tax in April 2024 – so that makes 2026 seem pretty likely.

How do I get ready for MTD?

Here’s the good news: most of my clients are already MTD-ready, even if they don’t know it.

That’s because DB Accounting is a technology-led accounting firm built around cloud software – and both QuickBooks and Xero are MTD-compatible out of the box.

That’s on top of all the other benefits they bring, too, from easy receipt-scanning to instant cashflow readouts.

For some very small businesses, though, there are also a few free options among the long list of compatible products on the HMRC website.

What you can’t do, I’m afraid, is wait for MTD to go away – that’s not going to happen – or fudge it by copying and pasting between spreadsheets or systems.

HMRC is very clear that, under MTD, your accounts have to be electronic from end to end and that the transfer of data between applications must be via ‘digital links’.

Talk to us for advice on getting your business MTD ready with Xero or QuickBooks.

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