The Making Tax Digital (MTD) regime saw taxpayers moving to a fully digital tax system following its introduction in April 2019.

Hundreds of thousands of VAT-registered businesses above the VAT threshold (£85,000) are now already recording and reporting their affairs digitally to HM Revenue & Customs (HMRC) using compatible software.

The rollout of MTD for VAT began in August 2019 and has continued quarterly for all businesses. Every VAT-registered business above the £85,000 threshold, apart from those with specific exemptions, should now be compliant with MTD for VAT.

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Are there any exemptions to MTD?

Exemptions are available where HMRC is satisfied the business is run by a practising member of a religious society or order whose beliefs are incompatible with the use of electronic communications, or for which HMRC is satisfied that it is not reasonably practicable to make a return using an electronic return system for reasons of disability, age, remoteness of location or any other reason.

A business may also be exempt if it is subject to insolvency procedures. There is a right of appeal against the refusal of an exemption by HMRC.

What software is compatible?

Looking ahead

Originally, other forms of taxation, such as Income Tax and Corporation Tax, were meant to follow on from the requirements for VAT from April 2020 at the earliest.

However, following the 2019 Spring Statement, the Government included an amendment in a Written Ministerial Statement, which confirmed that MTD for other forms of tax would be delayed until April 2021 at the earliest.

The legislation is currently drafted in such a way that the obligations are likely to begin with effect from the start of the first accounting period beginning after 5 April of the year in which MTD for Income Tax becomes mandatory.

In relation to Corporation Tax not much has been revealed yet by the Government, but it is expected to be introduced alongside or shortly after Income Tax reporting for MTD in 2021.

Time to prepare

This new process for other forms of taxation will require a far larger number of businesses, including those below the VAT threshold, to report their affairs digitally on a quarterly basis.

This is likely to include sole traders with income from one or more business, as well as individuals with income from letting UK property.

HMRC are currently in the process of testing and releasing information on software and the options for Income Tax.

The tax authority has begun to release some information on what software will be compliant with these new requirements, which can be found here.

However, it is expected that this list will grow considerably to incorporate other software providers as the date for implementing new systems grows nearer.

Although, the date at which full implementation of MTD has been delayed, it is imperative that businesses and individuals start to review their systems and processes now to ensure they are ready for this landmark shift in taxation in the coming years.

If you would like help preparing for MTD or are struggling with the complexities of the current VAT regime, please contact us.

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