Making Tax Digital

HMRC are introducing Making Tax Digital (MTD) to make it easier for individuals and businesses to get their tax right and keep on top of their affairs. HMRC’s vision is for the UK to be one of the most digitally advanced tax administrations in the world. It is estimated that over £9 billion is lost annually in tax due to errors and mistakes, and it is hoped that digital record keeping will help prevent errors associated with manual processes.

How does MTD work?

The long-term aim is for all businesses to maintain their records in digital format so that this can be used as an interface with HMRC. HMRC will receive the information you submit much earlier than at present, and you will have access to a personal and business account which shows how much tax you owe. Working via cloud approved software will enable you to report and pay your tax with ease.

When does it start?

MTD is gradually being phased in and will eventually apply to all taxes.

The first stage applies to VAT registered businesses. From April 2022 all VAT registered businesses need to use HMRC compatible software to file their VAT returns. There will no longer be an option to do this via the HMRC portal or on paper.

The next stage commences in April 2024 and will apply to Income Tax, but only to a select number of people, namely landlords and sole traders who have income of more than £10,000. General partnerships will not be required to join until April 2025, and other types of partnerships later. Records will need to be maintained in digital format and quarterly online reporting will be required.

What is meant by ‘turnover’ for these purposes?

For VAT purposes, turnover means your taxable supplies, before charging VAT. Supplies made which are exempt or outside the scope of UK VAT, such as when you supply services to businesses outside the UK, are not taxable supplies.

I’m using FreeAgent, is this compatible?

Yes, FreeAgent is MTD approved so no need to worry!

I am still using quarterly returns, what should I do?

If you are still using our Excel quarterly returns, you can continue to do so provided you are not VAT registered. If you want to stay VAT registered it is possible to use special software that links to the spreadsheet, and we have access to such a package. However, the whole process is much longer than using cloud-based software and therefore we charge extra per quarter if you need us to do this.

Responsibility to register

HMRC have said that it will be the responsibility of the owner to identify when they need to register for MTD.

How do I register?

You may have received a letter from HMRC asking you to register for MTD.  If you know that your taxable supplies will exceed £85,000 in the 12 months to 31 March 2019 then you may wish to register now so that you are already set up prior to when it becomes compulsory for you in April 2019. Note however, once you have joined MTD you cannot withdraw, even if your turnover subsequently falls below the threshold.

You will need to register via the Government Gateway and will need your User ID and password plus your VAT registration number. Please follow this link or get in touch with us:

Amy FowlerMaking Tax Digital