What is Making Tax Digital (MTD)?

Key facts:

Making Tax Digital (MTD) is the HMRC project designed to get all businesses and individuals to start keeping their accounting and tax records on a computer. There is a rolling program over several years that will eventually mean that everything happens in a joined-up way – no more having to tell HMRC information that they already know. The key element of MTD that is live is MTD for VAT.

The program to get businesses to report everything to do with tax electronically and receive everything back the same way is in full swing. Critically, this is not just about filling in a web form. The records that back up VAT and tax returns must be held on computer and the tax returns and declarations must be based on those records.

HMRC has stated that most dates for tax reporting and payment will not change under MTD.

Fuller explanation:

After several false starts, HMRC now have MTD for VAT fully up and running they probably chose VAT first because:

The return is relatively straight forward
Companies that are VAT registered (and therefore have sales of over £85,000) will be better equipped to comply than sole traders

MTD for VAT

VAT continues to be paid quarterly. From 1st April 2022 it has been compulsory to have an electronic connection between the electronic records through to the MTD VAT return. That means that cutting and pasting totals into the "nine boxes" is no longer acceptable by HMRC.

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MTD for ITSA

MTD for ITSA (Income Tax Self Assessment) will come in for April 2026 for anyone running a business with sales more than £50,000 per annum with those with sales over £30,000 having to comply a year later. It means they have to submit quarterly profit and loss figures and then a final tax return - 5 returns in all during each year. They must keep electronic records of sales and costs and these must be linked through to their submission to HMRC.

MTD for Corporation Tax

MTD for Corporation Tax (so reporting profit and loss for a limited liability company) will be introduced later.

HMRC are planning on spending £1.8bn to develop the MTD infrastructure and £68m for the single customer account (SCA) and single customer record (SCR). This will show taxpayer information in one place, replacing existing personal and business tax accounts, and will include:

employer supplied information, such as P60, P45 and P11D
pension contributions paid provided by the pension scheme
interest certificates obtained from banks
rental income obtained from letting agents
dividend statements obtained from brokers
gift aid statements from charities

Are there any benefits of using MTD?

HMRC has stated that most dates for tax reporting and payment will not change under MTD.

After several false starts, HMRC now have MTD for VAT fully up and running they probably chose VAT first because:

The return is relatively straight forward
Companies that are VAT registered (and therefore have sales of over £85,000) will be better equipped to comply than sole traders

VAT continues to be paid quarterly but cutting and pasting totals into the "nine boxes" is no longer acceptable by HMRC.

MTD for ITSA (Income Tax Self Assessment) will come in for April 2026 for anyone running a business with sales more than £50,000 per annum with those with sales over £30,000 joining in 2027. It means they have to submit quarterly profit and loss figures and then a final tax return - 5 returns in all during each year. They must keep electronic records of sales and costs and these must be linked through to their submission to HMRC.

MTD for Corporation Tax (so reporting profit and loss for a limited liability company) is expected to be introduced later.