MTD (Making Tax Digital) is a government scheme that allows simpler and easier digital ways of handling taxes. Currently, the scheme is being developed and isn’t fully implemented, meaning many businesses are avoiding the inevitable sign-up required. What are the details surrounding it, and why should you register for MTD as soon as possible?
Why it is being implemented
Making tax digital is a scheme that would allow small businesses and sole traders to manage their taxes easier. By allowing tax returns and such to be submitted through digital means, they create accessibility for those that could benefit.
It saves time
HMRC has done in-depth studies on the benefits of web-based accounting software and found that it delivers an 11.8% productivity increase for micro-businesses. Lloyds Bank UK Consumer Digital Index 2019 found that an individual saves an admin day a week by going digital.
There are options now
With this change in taxes came a market that allows consumers a choice when deciding how they handle their taxes. This is through the creation of a new market, the digital tax management technology market, in which plenty of businesses are taking part in. As of the moment, this is throughout the VAT sector as that is all which has been fully implemented. In the future, it can be assumed that there will be options for income tax, and possibly even corporation tax.
MTD for VAT (2022)
As of April 2022, Digital VAT returns will be mandatory for businesses that make over £85,000. This means that all businesses who were submitting VAT by any other means must now use one of the various digital options. HMRC has made an extensive list of options which can be found here.
While it might appear this will slow down the VAT process, it is actually made to speed it up. The specialised software required has become far more user-focused and easy to use, as the market for it has become more active. Because of this, the MTD process for VAT has been incredibly optimised and is only continuing to improve.
MTD for income tax (2024)
Income tax has not yet been fully implemented as part of the MTD scheme. As such, it will not be mandated until April 2024. Self-employed businesses, which include sole traders and partnerships, as well as landlords who earn in excess of £10,000 annually, will be required to use MTD for the income tax past the mandatory date (April 2024).
Currently, there is little software available to actually help with this process. However, it’s not well known that Microsoft Excel is actually MTD compliant. Sole traders can therefore opt in to MTD for income tax using excel sheets. This would mean they never have to change their method to remain compliant with HMRC in terms of income tax.
MTD for corporation tax (2026)
Corporation tax is not yet in effect to any capacity. No apps are being made for it and any that claim to be offering the service are most likely fraudulent. HMRC is currently welcoming input from software developers, companies and small business.
HMRC will be allowing those who pay corporation tax to take part in a pilot for the scheme. This will happen sometime before it becomes mandatory in 2026. More information on MTD for corporation tax can be found here.