What is Making Tax Digital?
Definition of Making Tax Digital
Making Tax Digital is a government initiative that sets out a bold vision for a digital tax system to "make it easier for individuals and businesses to get tax right and keep on top of their affairs".
The aim of the initiative is to make tax administration more effective, more efficient and easier for taxpayers, through the implementation of a fully digital tax system.
The changes outlined in the Making Tax Digital initiative will apply to a wide range of taxpayers, including most businesses, self-employed people and landlords, as well as individual taxpayers.
When will the next changes happen?
Making Tax Digital has a phased rollout plan which started in early 2016. Its key milestones include:
- April 2017 - Private pilot of rollout starts.
- July-December 2017 - Digital tax accounts show taxpayers an overview of their liabilities in one place and HMRC begins a private pilot of Making Tax Digital for VAT.
- Spring 2018 - Live pilot of Making Tax Digital for VAT begins.
- April 2019 - Businesses with VATable sales above the VAT threshold are required to keep digital records and submit quarterly returns for VAT purposes only through their accounting software.
- April 2021 - HMRC no longer accepts VAT submissions made using the XML facility. This means that MTD VAT returns must be submitted via HMRC’s MTD connection.
- April 2022 - VAT-registered businesses with VATable sales below £85,000 will need to follow Making Tax Digital rules for their first VAT return starting on or after April 2022.
- April 2024 - Making Tax Digital for Income Tax Self Assessment will be introduced requiring self-employed businesses and landlords with annual business or property income above £10,000 to follow the rules for MTD for Income Tax Self Assessment from 6th April 2024.
- April 2025 - Partnerships with individuals as partners will have to follow the rules for MTD for Income Tax Self Assessment from April 2025. Limited liability partnerships (LLPs) and partnerships with corporate partners will be required to join at a future date yet to be announced.
- 2025 onwards - MTD for Corporation Tax is expected to be the next phase in the initiative. However, HMRC has advised that MTD for Corporation Tax rules won’t come into effect until at least 2026.
Find out more on HMRC’s website.
Update: in response the coronavirus crisis, HMRC has announced that they have extended the deadline for putting digital links in place between accounting software and HMRC's systems. The new deadline is now your business's first VAT period following 1st April 2021.
More about Making Tax Digital
To stay up-to-date with the new initiative, take a look at our Making Tax Digital resources for small businesses and accountants.
More information about the Making Tax Digital initiative, along with a detailed breakdown of timescales and milestones, is available from gov.uk.
Disclaimer: The content included in this glossary is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this glossary. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.
