What’s next for Making Tax Digital?

Making Tax Digital

Earlier this week, the Government announced it would be postponing Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) for two more years until April 2026.

Making Tax Digital

As well as delaying it’s implementation, the government also made changes to the terms of the self-assessment stage of MTD, and a planned review means further changes could be in the pipeline.

However, Making Tax Digital for VAT (MTD for VAT) already applies to all VAT-registered businesses. 

Here we take a look at what we know about Making Tax Digital so far.

Delay to MTD for ITSA

MTD for ITSA will now be introduced from April 2026, with businesses, self-employed individuals and landlords with income over £50,000 mandated to join first, which is one of the key changes from the previous guidelines, which was a £10,000 limit.

Those with income over £30,000 will be mandated from April 2027.

Making Tax Digital

The government will also review the needs of smaller businesses and look in detail at whether the MTD for ITSA service can be shaped to meet the needs of smaller businesses.

Following the new approach, the government will not extend MTD for ITSA to general partnerships in 2025.

How does MTD apply?

Making Tax Digital involves keeping all of your business’s specific accounting records in a prescribed digital format and transmitting the information to HMRC digitally.

This is done using functional-compatible software for record-keeping purposes. This software is linked with HMRC systems and submissions are then made directly to HMRC. There is a specific authorisation process at the outset (and every 18 months afterwards) to enable this.

Making Tax Digital chANGES

Making Tax Digital rules require an uninterrupted digital journey to HMRC, with information flowing from the accounting records to the digital filing, without manual input.

Spreadsheets can form a component part of digital record keeping, provided that the product that consolidates records or summary records from the spreadsheet is digital.

Making Tax Digital for VAT

All VAT-registered businesses should now be using Making Tax Digital for VAT, whether businesses with a taxable turnover over the VAT registration threshold of £85,000, or those operating under this level. 

Using the correct software

Appropriate functional compatible software must be used for all business income and expenses. For retail sales, digital records mean a single digital record of the daily gross takings.

HMRC has a comprehensive list of all the software options that are available to you that is compatible with Making Tax Digital.

The penalty regime

New penalty rules are being introduced for late submission and late payment. They apply initially to VAT, for VAT periods beginning on or after 1 January 2023.

Instead of an automatic financial penalty for failure to submit on time, penalty points accrue. When a particular points threshold is reached, a penalty arises.

How Blue Spire can help

HMRC’s MTD project continues with further changes and updates expected. We will keep you updated on these changes.

We can also help ensure you comply with HMRC’s requirements, select the right software and prepare you for the changes to come.

MTD Penalty self-assessment Making Tax Digital
If you want to know more about MTD for ITSA or wish to start preparing for the digital journey ahead, please do not hesitate to contact us.
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