Making Tax Digital for Business (MTDfB) is the government’s vision to have one of the most digitally advanced tax systems in the World. In their words “to improve efficiency and to reduce error”. By forcing businesses to store and share information digitally, HMRC will have quicker access to data and clear audit trails from source documents to filed returns.
MTD for VAT
The first step in the MTDfB process focuses on the way VAT return information is stored, processed and communicated and will impact VAT registered business with a taxable turnover greater than the VAT registration threshold (currently £85,000).
From April 2019 “businesses must be capable of keeping and maintaining the records specified in the regulations, preparing their VAT returns using the information maintained in those digital records and communicating with HMRC digitally via an Application Programming Interface (API) platform” (HMRC VAT notice 700/22).
MTD for Income Tax (MTD for ITSA)
Under the requirements of MTD for ITSA, individuals who are subject to income tax on the profits of their trade, profession, vocation or property business will be required to keep their accounting records electronically (either using suitable software or on spreadsheet) and file quarterly returns to HMRC with details of their income and expenditure together with any other information that HMRC specifies. A final end of period statement will then be submitted after the tax year to complete the individual’s tax affairs.
Although the frequency of reporting is to change, the timing of tax payments will not and the current system of payments on account and balancing payment by 31 January after the tax year is currently expected to remain in place.
MTD for ITSA will be introduced from April 2024, for sole traders and landlords with gross income over £10,000. All businesses which were in existence immediately before 6 April 2023 will join MTD for ITSA from 6 April 2024, regardless of their accounting period end.
The rules will apply from April 2025 to general partnerships with business or property income that only have individuals as partners. All other partnerships (e.g. those that have corporate partners and Limited Liability Partnerships) are not required to join MTD for ITSA in April 2025 but will be required to join MTD at a future date (to be confirmed).
All businesses within MTD for ITSA will have to provide quarterly updates of their income and expenses for the following periods, by the following deadlines, regardless of their accounting period end:
|Period covered||Filing deadline|
|Quarterly update 1||6 April to 5 July||5 August|
|Quarterly update 2||6 July to 5 October||5 November|
|Quarterly update 3||6 October to 5 January||5 February|
|Quarterly update 4||6 January to 5 April||5 May|
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