Making Tax Digital (MTD)

MAKING TAX DIGITAL (MTD)

MTD is a new way of submitting tax to HMRC which, combined with a set of principles, has been designed to reduce errors and improve tax filing timeliness. This will involve the increased use of software to automatically process accounting and tax filing data from its time of capture, e.g. data entry from an invoice, to the point of submission.

The first MTD tax filing system to be introduced by HMRC was VAT. Self Assessment will be next, possibly followed by Company tax, although this is yet to be confirmed.

The Ftax VAT tax filing form is already fully compliant with MTD. Ablegatio is fully committed to follow future HMRC MTD initiatives, and to upgrade the Ftax service accordingly.

Buy as A Business Buy as AN Agent 

MY BUSINESS IS VAT REGISTERED. WHAT MUST I DO?

All UK VAT businesses need to comply with MTD rules from April 2022. This includes limited companies, partnerships, sole traders, UK landlords, charities, and trusts.

WHAT IS MTD FOR VAT?

Making Tax Digital (MTD) for VAT is part of an HMRC move to simplify tax, making it easier for taxpayers to file their tax correctly. Businesses who fall within the defined thresholds will need to use MTD compliant software to keep digital records and to submit their tax returns.

MTD for VAT was first introduced in 2019 for businesses over the VAT threshold (£85,000). From April 2022, the rules are being extended to all VAT registered businesses, regardless of turnover. 

WHAT ARE THE BENEFITS OF MTD?

HMRC research shows existing participants have felt more confident about filing their returns since the MTD VAT rules were introduced. Most of those surveyed found it easier to prepare and calculate their VAT return.

MTD benefits include:

• Improved accuracy leading to fewer reporting errors
• Reliable record-keeping
• Faster tax return filing
• Less time spent sorting out paperwork

Along with saving time, the main benefit of MTD is the improvement in accuracy. Processes which were previously carried out manually are automated using MTD software. This leads to income and expense values being imported correctly and errors being automatically identified. This means businesses can spend less time on paperwork and more time on their business.

WHAT OTHER TAXES WILL BE FILED USING MTD?

From April 2026, MTD will be rolled out for Income Tax Self Assessment. self-employments and landlords with an annual turnover above £30,000.

Ftax will follow all MTD initiatives.

WHAT WILL HAPPEN TO BUSINESSES WHO DON'T COMPLY WITH MTD?

There are a few exceptions, but those who do not comply with the rules and meet MTD deadlines could face a fine. From January 2023, HMRC is moving to a points-based system so that MTD for VAT penalties will only be given to those who regularly make mistakes and miss deadlines. Taxpayers who make occasional errors will not be penalised.

WHAT ARE THE TIMESCALES FOR INTRODUCING MTD?

• In 2019, MTD for VAT became mandatory for VAT registered businesses with a taxable turnover of £85,000 or above.
• From April 2022 this was expanded to all VAT registered businesses who must file VAT reports with periods starting on or after 1 April 2022 using MTD.
• From April 2026 MTD for Income Tax Self Assessment will apply to the self-employment or property landlords with annual income of more than £50,000. 
• From April 2027 MTD for Income Tax Self Assessment will apply to self-employed and landlords with annual income of more than £30,000. 

HOW DO I FILE TAX USING MTD?

The Making Tax Digital rules require you to:

• keep and maintain digital records of your tax affairs
• file tax returns to HMRC using MTD compatible software

Only software recognised by HMRC which meets the Making Tax Digital requirements may be used for MTD tax filing. The Ftax MTD VAT form fully complies with HMRC’s MTD requirements.

HMRC MTD GUIDANCE

• Ftax HMRC Recognised Software - Ftax is recognised by HMRC as a third-party supplier of online tax filing software.
• Use software to submit your VAT Returns - A guide for businesses, outlining who can sign up to the MTD for VAT pilot and providing details of how to join.
• Agents: use software to submit VAT Returns - A guide for agents, outlining how agents and their clients can sign up for the MTD for VAT pilot and details of how to join.
• Stakeholder communications pack - Dedicated resource for key stakeholders to obtain all the facts about MTD.
• VAT notice 700/22
• MTD: How VAT businesses and other VAT entities can get ready