The UK’s taxation system is undergoing a transformation: Making Tax Digital (MTD). This government initiative aims to streamline HMRC’s processes for everyone. However, such changes can create uncertainty, requiring individuals and businesses to adapt in order to avoid penalties. This guide outlines the key stages in the Making Tax Digital timeline so far, as well as future changes to prepare for. Read on as we help you keep up with regulations and stay compliant.
What is Making Tax Digital?
Making Tax Digital is HMRC’s scheme to modernise the UK’s taxation system and administration. MTD aims to benefit the UK government, businesses and individuals through several key objectives. In general, aims include increasing efficiency, simplifying tax processes, and reducing human error. This will be achieved by the introduction of new, digital means of record-keeping and tax reporting.
In order to achieve these aims, HMRC has begun to encourage (and sometimes mandate) the use of digital tax tools and gradually phase out paper-based forms of tax. As these new recommendations and rules come into effect, individuals and businesses paying tax need to ensure that they comply. For more information about the goals and new requirements underlying MTD, check out our comprehensive guide to MTD.
Making Tax Digital Timeline: Key Milestones
Making Tax Digital is a significant initiative, ushering in substantial change to the UK’s taxation system. Let’s review the key steps reached so far, as well as upcoming milestones and expected changes.
Budget 2015: UK Government Announces Making Tax Digital Roadmap
At Budget 2015, the UK government announced a plan to transform the UK’s tax system (source). This was solidified in December 2015 by the publication of a roadmap for Making Tax Digital. This was the first time that the term MTD was used publicly.
It was stated that MTD would aim to make the taxation system simpler, more efficient and more effective by 2020.
April 2017: MTD for Self Assessment Pilot Launched
In April 2017, HMRC launched a limited pilot system for developers to test MTD for Self Assessment. This enabled HMRC to receive feedback and helped to refine the final version. Although the introduction of MTD was originally slated for 2018, the pilot system continued running until 2022 (source).
April 2019: MTD for VAT Becomes Mandatory for Larger Businesses
In April 2019, VAT for MTD was introduced for all businesses with taxable turnover above the VAT threshold (£85,000 at the time). This change required applicable business-owners to maintain digital records and submit quarterly VAT returns using compatible software.
Although MTD for Self Assessment was still a while away, this was a major milestone in the transition to digital tax for HMRC.
April 2022: MTD for VAT Expands to All VAT-Registered Businesses
In April 2022, MTD for VAT widened its scope to all VAT-registered businesses (regardless of taxable turnover status). Unless exempt, all new VAT-registering businesses since this point have been signed up for MTD for VAT automatically.
This change means that all VAT-registered businesses (barring few exceptions) must now comply with MTD for VAT, including maintaining digital records and submitting regular tax returns via MTD-compatible software.
December 2022: Extended MTD for Self Assessment Deadline
In December 2022, the UK government announced a delay to the Making Tax Digital timeline: MTD for Self Assessment will not begin until at least 2026. This is the fourth (and latest) such delay since the start of MTD planning (source).
April 2026: MTD for Self Assessment (£50,000)
From 6 April 2026, individuals with eligible personal income reaching £50,000 or above will need to comply with MTD. This will include people such as sole traders, self-employed landlords, and individuals making money from side hustles or investments.
April 2027: MTD for Self Assessment (£30,000)
From 6 April 2027, the MTD for Self Assessment threshold will be reduced to £30,000. This means that any individuals turning over eligible income reaching £30,000 or above will need to comply with MTD for Self Assessment. However, this still does not include partnerships.
Future Timeline: MTD for Income Tax Self-Assessment (ITSA)
Although MTD for VAT is now fully underway, there are more rollout phases to expect for Self Assessment. For instance, the qualifying threshold will likely be reduced below £30,000 in the future. Furthermore, the UK government has expressed a commitment to extend MTD for Self Assessment (also called MTD for ITSA) to partnerships at some point.
Future Changes for Making Tax Digital for Self Assessment
As mentioned above, there are more deadlines to expect – particularly relating to MTD for Self Assessment (MTD for ITSA). With this in mind, it’s important for individuals and businesses to stay updated to remain compliant. Let’s have a look at some of the anticipated changes below.
Deadlines
With the introduction of MTD for ITSA, individuals with eligible income will need to begin submitting quarterly reports to HMRC. These reports will need to be submitted using compatible software (such as AbraTax). More information about these regular deadlines should be provided by HMRC closer to the time.
Although it is a legal responsibility to comply with tax deadlines, HMRC has historically taken some individual circumstances into account. In the event of serious and unavoidable issues, they might allow you to extend your filing deadline. Check out our article on this for more details. It is fair to anticipate the continuation of such provisions during MTD.
Mandatory Digital Record-Keeping for All Businesses
Once MTD is introduced, it will be mandatory to maintain digital records for your business. For VAT, this is already in force: all VAT-registered businesses must use appropriate software to keep digital financial records. For sole traders, landlords and other relevant individuals, this will also be a requirement for MTD for ITSA.
Wherever possible, digital links must be used rather than copying and pasting data. It is hoped that keeping digital records will help businesses and individuals to reduce human error and save time. Additionally, digital records make it easier to store backups across multiple locations, reducing the risk of data loss.
Increased HMRC Support for Digital Transition
As MTD rolls out and MTD-compatible software is adopted, access to support will be crucial. HMRC has a page dedicated to technical support here, alongside comprehensive technical guides on their website.
HMRC provides a free tool to help businesses assess the potential benefits of registering for MTD for VAT. The government also provides lists of HMRC-recognised services (such as AbraTax) to help you to choose MTD-compatible software. For MTD for VAT, which is already in effect, the full list is available here.
More Updates to MTD Rules and Compliance
Once MTD has begun, it’s important to remember that there might be yet more changes to come. This could include improvement in response to feedback from taxpayers, as well as any new regulations introduced by HMRC. Therefore, it will be vital to be aware of and prepare for any adjustments beyond today’s Making Tax Digital timeline.
How to Prepare for Upcoming MTD Changes
Software and Digital Tools (AbraTax)
The transition to MTD requires using MTD-compatible software to submit tax returns. Researching software such as AbraTax and familiarising yourself with our services could be a good way to ease the transition. By investing some time now, you could save yourself even more time and avoid stress in the future.
Steps for Individuals/Businesses to Take Now
- Assess how MTD applies to you/your business.
- Select MTD-compatible software.
- Train yourself/staff in digital record-keeping.
- Stay informed about deadlines and upcoming changes.
- Embrace MTD and/or seek advice early (before deadlines arrive).
Common Challenges and How to Overcome Them
Transitioning from Paper to Digital Records
Adopting digital records can feel like a huge task. However, it’s useful to remember that digital record-keeping holds many benefits, including reduction in human error and easier maintenance of backups.
To ease the transition, individuals and businesses should start using appropriate software as soon as practicable. This can help to avoid any last-minute issues, which in turn could lead to penalties for non-compliance.
Choosing the Right MTD Software
There are many factors to consider, including budget, ease of use, and trustworthiness. If you run a small business on a low budget, simpler software without any frills might be more appropriate than complex and costly services. One way to assess trustworthiness is to check whether the software is officially HMRC-recognised.
Understanding MTD Requirements
Over recent years, there have been many amendments to the government’s MTD plans and timelines. Staying informed (e.g., by searching for news/updates on a regular basis) is essential to ensure compliance when the time comes.
Maintaining Accurate and Up-to-Date Records
Inaccuracies in records could lead to penalties further down the line. Thankfully, accuracy is now easier than ever. Software with automated tools such as digital links can reduce the need for manual data entry, decreasing the likelihood of errors.
Implementing best practices for bookkeeping and embracing appropriate software today will help to comply with MTD more smoothly. Furthermore, conducting bookkeeping on a regular basis (e.g., weekly) can help you to stay up to date with less effort in the long run.
Meeting Quarterly Reporting Deadlines
MTD for Self Assessment will require quarterly updates. Therefore, businesses and individuals should implement efficient workflows to ensure timely submissions. This could include setting reminders before each deadline, and completing bookkeeping well in advance.
Depending on circumstances, MTD for VAT can require even monthly reports to HMRC. As a result, planning smooth workflow systems cannot be overstated. Using organisational tools such as Trello could help you to prioritise and complete tasks.
Dealing with Complex Tax Scenarios
There may be times when it is unclear whether and how MTD applies to you. In these instances, time can be on your side. If you plan ahead, you can set aside time for research or to contact qualified tax advisors.
How AbraTax Makes MTD Easy
AbraTax is designed to simplify your tax compliance. We support both Self Assessment and MTD for VAT, providing helpful guidance every step of the way. AbraTax is HMRC recognised and we have plans in place for MTD for ITSA. This means you can trust us to stay tax-compliant when the Making Tax Digital timeline comes into force.
Benefits of AbraTax
AbraTax (MTD for VAT) offers the following benefits:
- Seamless integration: Bridge existing spreadsheets with HMRC.
- Competitive pricing: Starting from £8 per month.
- Free trial: File your first VAT Return for free.
- Simple process: Complete VAT Returns in 3 easy steps.
- Multiple VAT registrations & users: Perfect for power-users and individuals alike.
Once MTD for ITSA begins, we will continue to provide user-friendly and low-cost services. For now, AbraTax Self Assessment already provides the following benefits:
- Step-by-step guidance: Comprehensive clarification and hints.
- Tailored for you: We combine all the forms you need.
- Automated tax calculation: We work out what you owe HMRC.
- Error-checking: Built-in validation system checks your data.
- Lowest cost: At present, AbraTax for Self Assessment is free!
AbraTax simplifies MTD compliance through intuitive features, time-saving automation, and seamless HMRC integration. By using AbraTax, businesses and individuals can minimise error, improve efficiency, and meet tax deadlines with ease.
Conclusion
Undoubtedly, Making Tax Digital is transforming the UK tax system. With MTD already underway, many businesses and individuals must prepare for change and adopt new systems. Doing this early will help to ensure compliance when the Making Tax Digital timeline eventually affects you. AbraTax offers elegant solutions for both VAT and Self Assessment. Register now to simplify your tax today!