Making Tax Digital: Dates for your Diary

All VAT-registered businesses will have to comply with Making Tax Digital (MTD) from 1 April 2022 whilst MTD for income tax has been delayed until 6 April 2023. What do you need to know?

The current rules

Since 1 April 2019, businesses with a taxable turnover that exceeded the VAT registration threshold (currently £85,000) have been required to store their VAT records digitally and submit VAT returns via an interface with HMRC software. Whereas the launch date for MTD for income tax has been delayed several times so individuals are still declaring their income via an annual self-assessment tax return.

When will this change?

From 1 April 2022, all VAT-registered businesses must comply with MTD for VAT regardless of their turnover. Individuals with annual business or property income above £10,000 will need to follow the rules for MTD for income tax from their next accounting period starting on or after 6 April 2023. HMRC will expand its MTD for income tax pilot service from April 2021 to allow individuals to test the full end-to-end service in advance. The Treasury hopes that this timeline will give everyone involved enough time to prepare for the changes.

The government is expected to hold consultations on introducing MTD for corporation tax later this year.

What will MTD for income tax look like?

Businesses and landlords who join MTD for income tax will need to send a quarterly summary of their income and expenses to HMRC using MTD-compatible software. They will receive an estimated tax calculation to help them budget for their tax payments. The estimate will be based on the information entered and won’t account for any tax-relievable payments such as gift aid or pension contributions, or any tax due on other income (for example investment income and capital gains).

At the end of the year, they can add any non-business information and finalise their tax affairs using MTD-compatible software. This replaces the need for a self-assessment tax return. There is clearly an opportunity to add value by helping clients to comply with the additional reporting requirements and provide more accurate tax estimates based on their other income and capital gains.

HMRC’s guidance on MTD for VAT can be found here.

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