What is Making Tax Digital?
The UK Government has taken steps to modernise the tax system and streamline processes for businesses and individuals. Making Tax Digital (MTD) is a key part of the Government's Tax Administration Strategy, aiming to bring the tax system closer to real-time. In this guide, our bean-counting superheroes explain the concept of Making Tax Digital, its benefits, requirements and how it applies to VAT and Income Tax.
- Author
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Steven Case
What is Making Tax Digital?
Making Tax Digital was created by the UK Government to implement a fully digital tax system. It requires businesses and individuals to keep digital records, use compatible software for tax management, and submit updates to HMRC every quarter. MTD aims to make it easier for taxpayers to get their tax right and integrate integrate the calculations into other business processes.
The Benefits of Making Tax Digital
MTD offers several benefits for businesses and individuals. Firstly, it simplifies tax management by improving the accuracy of digital records, thereby reducing the chances of avoidable errors. Many software products also provide additional features to assist with tax compliance, like the ability to send digital records directly to HMRC, eliminating the need for manual paperwork. Overall, our accountancy superheroes believe that Making Tax Digital contributes to wider productivity gains by streamlining tax processes.
Making Tax Digital for VAT
If you have a VAT registered business, Making Tax Digital for VAT applies to you. Starting from April 2022, all VAT-registered businesses have been required to keep digital records and file their VAT returns electronically using MTD-compatible software. HMRC will automatically sign up all remaining businesses for Making Tax Digital for VAT, unless they are exempt or have applied for exemption. Our financial guardians will find the perfect software that works for your business and is compliant with Making Tax Digital for VAT.
Making Tax Digital for Income Tax
Making Tax Digital for Income Tax affects all self-employed individuals and landlords. The implementation timeline for Making Tax Digital for Income Tax is as follows:
From 6 April 2026, it applies to those with an annual business or property income exceeding £50,000.
From April 2027, it applies to those with an annual business or property income exceeding £30,000.
Some businesses and agents are already participating in a live pilot to test and develop Making Tax Digital for Income Tax. We can check if it’s best for you to voluntarily sign up now.
Legislation and Compliance
There is a lot of legislation behind this new system and we could go into the detail here, but we believe it’s best you leave it to trusted accountants to keep you compliant.
Getting Support for Making Tax Digital
Transitioning to Making Tax Digital may seem daunting, but our bean-counting superheroes are available to support you every step of the way. By combining their advice and our proven software processes, there really is nothing to be worried about!
Conclusion
By requiring businesses and individuals to keep digital records and use compatible software like Xero and QuickBooks, HMRC aims to simplify tax management, improve accuracy and reduce errors. Whether you are a VAT-registered business or a self-employed individual, it is crucial to understand the requirements and timelines for Making Tax Digital. Our job is to help businesses and individuals navigate the world of taxation with ease and ensure compliance at every stage.
Our accountancy guardians have the backs of businesses and charities in many sectors, providing expert assistance in navigating the complexities of Making Tax Digital. So, don't hesitate to reach out for help. With the right tools and support, you can easily conquer the changes being brought about by Making Tax Digital.