If your business hasn't been brought within the scope of Making Tax Digital (MTD) already, it could be within the next few years, according to new plans set out by HMRC.

From 2022, all VAT-registered businesses will be included in MTD for VAT, and in 2023, business owners and landlords will have new digital requirements to meet when they're recording and reporting income tax.

The new plans, announced on 21 July 2020, were in part driven by the difficulty HMRC faced in implementing COVID-19 support measures this year, without enough data on the businesses that needed support.

Jessie Norman, Financial Secretary to the Treasury, said:

"The COVID-19 pandemic has highlighted the need for a more flexible, resilient and responsive tax system that provides businesses and HMRC with more up-to-date information on businesses and their finances, and enables easier identification and better targeting of taxpayer support."

What is MTD?

MTD is a Government programme that aims to move businesses and individuals in the UK away from paper records, and towards digital record-keeping and reporting instead.
HMRC says this will make tax administration "more effective, more efficient, and easier for taxpayers to get their tax right".

You might have already heard about the scheme's first phase, MTD for VAT, which became law on 1 April 2019.

From this point on, VAT-registered businesses with an annual taxable turnover above £85,000 are required to keep digital records for VAT and submit returns using compatible software.

Now those rules have been in place for more than a year, HMRC is keen to keep the scheme moving and extend it to other forms of tax.

The new MTD timeline

From April 2022, all VAT-registered businesses will need to meet the requirements of MTD - not just those with annual taxable turnover of more than the VAT-registration threshold.

Then, from accounting periods starting on or after 6 April 2023, all unincorporated businesses and landlords with a turnover of more than £10,000 will need to complete digital returns for income tax. This stage is being termed ‘MTD for income tax self-assessment', or MTD for ITSA.

Finally, the Government plans to extend MTD to incorporated businesses that are liable to pay corporation tax. It is expected to consult on this measure in the autumn, but no start date has been announced so far.

MTD background

This isn't the first time the Government has announced plans to extend MTD to taxes other than VAT. In fact, HMRC has always intended to include income tax and corporation tax in the scheme.

The programme was originally set out in an HMRC paper published in December 2015, and included plans to introduce quarterly digital reporting for income tax in 2018, extending it to VAT in 2019, and finally to corporation tax in 2020.

Amid concerns about the administrative burden this would place on businesses, those deadlines were later amended so that MTD for VAT would take place from April 2019, but other taxes would be introduced from a later date.

MTD for VAT was also introduced with a ‘soft-landing period', meaning businesses did not initially have to have digital links in place between their software programs, and could cut and paste their data instead.

This period was initially set to last a year from the implementation of MTD for VAT, but it was extended to April 2021 to help businesses that were struggling with the impacts of COVID-19.

Talk to us about Making Tax Digital.