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Making Tax Digital

What is Making Tax Digital All About?
We’re glad you asked… 

Reduce Errors

One of the big advantages to MTD is that it will reduce errors across accounting processes.

More efficient

MTD will make the process of submitting taxes much more efficient for everyone involved.

Crystal clear tax

MTD will enable a clearer view of tax data in real-time for all who need to see the data. 

What is Making Tax Digital?

Making Tax Digital (MTD) is a key part of the UK government’s plan to make it easier for individuals and businesses to get their taxes right and keep on top of their tax.

For many individuals and businesses, MTD represents a significant shift in how they manage and submit their tax information, so it is important that those impacted are prepared for the changes.

For taxpayers, this means a move away from annual tax returns to a more streamlined, digital, and ongoing process.

MTD for VAT kicked this all off in April 2022, next up is MTD for Income Tax

What’s the point of Making Tax Digital (MTD)?

MTD aims to create a digitally advanced tax system and by moving to the digital system HMRC hopes to:

  • Reduce errors in tax submissions
  • Make the process of submitting taxes more efficient (we all welcome this!) 
  • Provide a clearer view of tax data in real-time 

What Individuals Need to Know About Making Tax Digital (MTD)?

If you’re a sole trader or a landlord, here’s what you need to know about MTD for Income Tax.
Some of these are significant differences to the current process, so make sure you are prepared!

  • Income Tax: From April 2026, if you’re self-employed or a landlord with annual business or property income over £50,000, you’ll need to follow the MTD rules for Income Tax.
  • Qualifying period:  If you have a qualifying income of more than £50,000 in the 2024 to 2025 tax year, you will be required to submit tax returns under MTD from 6 April 2026. Qualifying income would include both trading and your individual share of rental income.
  • Digital Records: You’ll need to keep digital records of your income and expenses using MTD-compatible software.
  • Quarterly Updates: Instead of an annual tax return, you’ll send HMRC quarterly updates of your income and expenses.
  • End of Period Statement: After your fourth quarterly update, you’ll need to finalise your business income with an End of Period Statement.
  • Final Declaration: You’ll also need to submit a Final Declaration, replacing the current Self Assessment tax return.

What’s the timeline for Making Tax Digital (MTD) ?

  • From April 2024: individuals can once again volunteer to participate in the MTD for Income Tax pilot program (Re-opened April 2024).
  • From April 2026: MTD for Income Tax will be mandated for self-employed businesses and landlords with turnover above £50,000.
  • From April 2027: MTD for Income Tax will be mandated for self-employed businesses and landlords with business turnover above £30,000.
  • For businesses that commence on or after 6 April 2025, usually MTD will not start until 6 April following the tax year in which they commenced trading. (see Digital start date).
  • HMRC will review smaller businesses (with turnover of less than £30,000) to decide if they will be mandated to join MTD.
  • No timetable has yet been introduced for partnerships.

What Small Businesses Need to Know About Making Tax Digital (MTD)

 

For small businesses, the implications of MTD are slightly different to individuals:

1. VAT: If your business is VAT-registered with a taxable turnover above £90,000 you should already be using MTD for VAT.

2. Corporation Tax: MTD for Corporation Tax will not be introduced before April 2026 but is coming.

3. Digital Record Keeping: You must keep digital records of all business transactions

4. Compatible Software: Ensure you’re using MTD-compatible software for record-keeping and submissions – like Xero 🫶

5. More Frequent Reporting: Prepare for more frequent (quarterly) reporting to HMRC.

6. Digital Links: Ensure all your financial systems have digital links if you use more than one application.

Need some help? 

How Shapes Can Help You Prepare for MTD for Income Tax

A good relationship with your accountant can be invaluable in helping you navigate the transition to MTD:

  1. Software Selection: We can advise on and help implement Xero to your business or organisation – it’s MTD-compatible already 🎉
  2. Training: Provide training on how to use any new digital systems, Xero or data capture effectively and efficiently.
  3. Process Review: Review and optimise your current financial processes to align with MTD requirements – plus… can we save your team some time? 
  4. Compliance Check: Ensure you’re fully compliant with all aspects of MTD relevant to your situation.
  5. Ongoing Support: Offer continued support as you adapt to the new digital tax landscape.
  6. Liaising with HMRC: Act as an agent for you with HMRC, helping to resolve any issues that arise. See more on our tax services here. 

The new digital tax era is coming very soon.


Your local accountant is your best resource for personalised advice on Making Tax Digital.

Additional sources of information about Making Tax Digital

 

https://www.gov.uk/guidance/check-if-youre-eligible-for-making-tax-digital-for-income-tax

https://www.gov.uk/guidance/work-out-your-qualifying-income-for-making-tax-digital-for-income-tax

Make your tax digital today

Get Shapes in for a review and a quote on how we can turn your accounting into a digital experience.