Making Tax Digital FAQs

Making Tax Digital (MTD) is an HMRC initiative that will revolutionise the UK tax system and ultimately bring an end to self-assessment.
The primary aim of Making Tax Digital is to make tax administration more effective, efficient, and easier for taxpayers through the implementation of a fully digitalised tax system, whilst also reducing HMRC’s overheads for managing tax affairs.
The changes apply to a wide range of taxpayers, including most businesses, self-employed professionals, and landlords. This ‘new and improved’ tax system will require the majority of business owners to maintain digital records using compatible software.
What is MTD?
Originally announced in the spring 2015 Budget, the MTD initiative will enhance the use of digital data to modernise the UK tax system by 2020, thus making HMRC the most efficient tax authority in the world.
What is a Digital Tax Account?
HMRC is replacing tax returns with digital tax accounts for millions of businesses and individuals. A digital tax account brings together each taxpayer’s details in one place, just like an online bank account. Taxpayers will be able to view their tax affairs in real time, update their information, register for new services, see at-a-glance how their tax is calculated, and choose payment options.
What is the timeline for MTD?
This is the latest Making Tax Digital timeline, announced by HMRC on 12th November 2020:

Quarterly reporting is now:

  • Mandatory for VAT for all VAT-registered businesses with a turnover above the VAT registration threshold (£85,000)
  • Optional for VAT-registered businesses with a turnover below the VAT registration threshold (£85,000). It will become mandatory from April 2022

From April 2023, quarterly reporting is:

  • Mandatory for income tax for self-employed businesses and landlords with annual business or property income above £10,000

MTD for Corporation Tax is still under consultation, and HMRC will not mandate its usage before 2026.

What about ‘Digital Record Keeping’?
Only those businesses with an obligation to file quarterly (VAT-registered businesses with a turnover over the threshold) are obliged to keep digital records. For all other businesses, this becomes optional.
What about Monthly/Annual VAT returns?
Businesses submitting monthly returns (whether directed to by HMRC or doing so voluntarily), will continue to do so. Similarly, businesses submitting nonstandard returns can continue to do so.

The VAT annual accounting scheme will be retained with the current conditions. All of the above, if not exempt from MTD, will be required to keep digital records and submit their VAT returns through functional compatible software.

Periodic Updates (Voluntary)?
Businesses will be able to submit VAT information more frequently than their VAT return obligations require. The regulations will provide for the submission of this information on a voluntary basis (‘voluntary update’).

A voluntary update won’t discharge the VAT return obligation and won’t create a liability that must be paid or trigger a repayment.

What about error corrections to previous returns?
The existing error correction rules will apply where a taxable person needs to amend their VAT accounting records.