HMRC’s Making Tax Digital (MTD) programme is designed to reform the UK’s tax system by implementing a ‘digital first’ approach to tax filings and interaction with HMRC, and to move towards a more ‘real time’ exchange of data between taxpayers and HMRC. The programme will ultimately result in a major change in the way tax is handled for the vast majority of businesses and individuals currently submitting self-assessment tax returns.
MTD for VAT was the first step in the MTD programme, with businesses making taxable supplies over the VAT threshold having been required to report digitally since 1 April 2019. From April 2022, all VAT registered businesses have been required to join MTD for their VAT return.
MTD for income tax self assessment (MTD ITSA) will be introduced for individual self-employed businesses and landlords with annual business or property income above £10,000 from 6 April 2024. MTD ITSA will then be extended to all general partnerships without corporate or trust members with annual business or property income above £10,000 from 6 April 2025.
In order to ensure a smooth transition to digital record-keeping, we recommend those who are likely to be affected by MTD ITSA keep records of all transactions in digital form as soon as possible. Our experience is that clients often see a real benefit from improving their record-keeping processes and, where appropriate, adopting cloud-based systems. So, preparing early could help you make sure that the MTD changes are more than just an additional administrative cost. If, on the other hand, you are not in a position to take on the digital record keeping obligations for yourself, you could look to outsource them: if this might be of interest please get in touch with your usual Saffery Champness contact.
Affected taxpayers will need to make quarterly updates to HMRC using their digital records, together with an annual income tax filing which will include both business and non-business income and gains. Taxpayers with both rental and business income, or with more than one business, will be expected to make quarterly updates to HMRC for each business and/or rental activity, along with a single annual income tax filing.
The move to quarterly reporting in-year is a major change for taxpayers, but we aim to make the transition as smooth as possible for our clients. As a result, we have been busy preparing so that we can help you with the changes ahead. Please do get in touch with your usual contact at the firm so that we can discuss how we can help you, and walk you through the changes.
More detail on the changes to income tax self assessment as a result of MTD can be found in our briefing on MTD ITSA.
MTD is expected to be extended to corporation tax after the rollout of MTD ITSA.
Affected businesses will keep digital records, and make quarterly reports to HMRC, with an annual corporation tax filing made after the end of their accounting period.
These changes sit within a wider programme which potentially includes changes to tax payments as well as to the penalties regime for late filing or late payment of tax. We will continue to engage with HMRC and clients as further details of future changes emerge.
More detail on the changes can be found in our briefing on MTD for corporation tax.
Our briefings provide more detail on the MTD programme. If you have any questions on how the changes will affect you please get in touch with your usual Saffery Champness contact.
Our roadmap below details the key dates to be aware of: