Making Tax Digital 2023

The first phase of Making Tax Digital (MTD) for VAT was launched in 2019. Businesses at or above the VAT threshold (currently £85,000) and voluntarily registered smaller businesses were affected but it wasn’t compulsory. They had to keep digital records and use compliant accounting software to make their VAT returns. 

 

During the pandemic the deadline for compulsory MTD for VAT was extended from April 2020 to April 2022. 

 

Now, VAT registered businesses must make their payments on the same dates but returns must be submitted digitally. Additional MTD for VAT records aren’t needed and if you have an exemption from online filing this will continue. 

 

Next, HMRC wants most self-employed people and private landlords with taxable income above £30,000 to submit digital tax returns. If you’re affected you will need to keep digital records for income tax and Class 4 National Insurance Contributions (NICs). You will need to file regular quarterly updates and an end of year report using compliant software. 

 

MTD for ITSA was due to start in April this year. It has now been postponed to April 2026 for people with taxable income over £50,000. Those with income of between £30,000 and £50,000 will need to take part from April 2027. 

 

MTD for ITSA won’t be extended to general partnerships in 2025 as previously planned. However, the government says this remains part of its MTD commitment. 

 

To be ready to meet the new requirements, you can take part in MTD for ITSA voluntarily now. This applies to sole traders with income from one business and landlords who rent out properties in the UK. If you have other income you won’t be able to take part yet. You must be a UK resident and registered for Self Assessment with all your returns and payments up to date. We’re still waiting to hear about HMRC’s plans for partnerships and people with income below £30,000. 

 

To sign up you will need to use compatible software and keep digital records. Every quarter you will then send a digital summary of your business income and expenditure. You’ll also need to provide a final statement and declaration at the end of the year. You won’t need to send a Self Assessment tax return as you do now, although you will have to complete one for the year before you join MTD for ITSA. 

 

The advantage is that you’ll have a clearer view of how much tax you will pay throughout the year. 

 

You can leave the MTD for ITSA trial if you decide it’s not working for you at the moment. However, you’ll need to participate from 2026 or 2027, depending on your income. 

 

The government published the results of consultation on MTD for Corporation Tax in late 2021. Currently, there aren’t any proposals to introduce digital record keeping and filing for Corporation Tax before April 2026. You might be able to take part in trials from 2024. 

 

You will need a PC, laptop or mobile device that supports software for digital record keeping. The software must be able to communicate with the HMRC’s systems for you to file your returns. 

 

If your business software is on a standalone office computer without an internet connection it will probably need updating. 

 

Cloud-based accounting software like Xero allows you to login to see your tax information from anywhere. Software like this will probably meet the requirements for MTD. You can check with your supplier or bookkeeper to make sure.