Making Tax Digital

Make the switch to digital tax

Making Tax Digital, or MTD for short, is a Government initiative that aims to fully digitise the tax system, making it easier for businesses and individuals to manage, and less prone to error.

It was first announced in 2015, and its first mandatory stage – MTD for VAT – began on 1 April 2019. It’s likely to expand its reach in the coming years, with plans to eventually include other taxes and replace self-assessment.

Whether you’re already in the scope of MTD, or looking to update your accounting systems ahead of the next developments, here’s what you need to know.

Software requirements

For businesses, MTD involves two key requirements:

• Keep digital accounting records. Paper records won’t meet legal record-keeping requirements anymore, and any digital solution needs to be able to link to HMRC’s systems.

• Use compatible software to submit returns to HMRC. The software must be able to record and preserve digital records, and send and receive information through HMRC’s application programming interface, or API.

To meet both of these requirements, we recommend using fully-compliant online accounting software like Xero.

Xero is HMRC-approved for MTD purposes and offers a smart, user-friendly solution to any business looking to digitise their accounting process.

Making Tax Digital for VAT

The first mandatory phase of the scheme applies to VAT-registered businesses with a turnover above the VAT threshold. 

Those included must meet the requirements of MTD when they’re keeping VAT records and filing returns.

MTD for VAT took effect on 1 April 2019, but start dates have been staggered depending on where each business’s VAT quarters fall. See our timeline below for the full list of start dates.

Making Tax Digital for individuals

In 2015, HMRC launched a system of personal tax accounts, which allow individuals to check and manage their tax details online. 

There are plans to update the services included in these accounts over time, including moving more taxpayers over to simple assessment instead of self-assessment. This would allow HMRC to complete the tax calculation for those individuals using data it already holds.

Work on this part of the scheme has been paused to free up HMRC resources for Brexit, with no indication so far as to when this will be completed.

Making Tax Digital timeline

Here are a few of the key dates to be aware of as MTD continues to roll out.

Record-keeping under MTD

1 April 2019: MTD for VAT comes into force. Businesses with a VAT period from 1 April to 30 June must start maintaining digital records.

1 May 2019: Businesses with a VAT period from 1 May to 31 July must start maintaining digital records.

1 June 2019: Businesses with a VAT period from 1 June to 31 August must start maintaining digital records.

Filing returns under MTD

7 August 2019: First deadline for quarterly submissions under MTD. This applies to businesses with a VAT period from 1 April to 30 June.

7 September 2019: Businesses with a VAT period from 1 May to 31 July must file their first returns under MTD.

7 October 2019: Businesses with a VAT period from 1 June to 31 August must file their first returns under MTD. 

Delayed start for complex businesses

1 October 2019: Deferred MTD start date for a minority of businesses with more complex requirements. The record-keeping and filing deadlines for these businesses are staggered from this date.

Further developments

1 April 2021: Other taxes, such as income tax and corporation tax, may be included under MTD.