Table of Contents
Key Takeaways
- Making Tax Digital aims to make tax returns simpler and more efficient for everyone.
- From April 2022, all VAT registered businesses were required to follow Making Tax Digital Rules.
- HMRC automatically signs up businesses to Making Tax Digital when they register for VAT unless they are exempt or have applied for exemption.
- Making Tax Digital for Income Tax comes into effect April 2026 for businesses with an income over £50,000.
- Making Tax Digital for Income Tax comes into effect April 2027 for businesses with an income over £30,000.
What is Making Tax Digital?
Making Tax Digital (MTD) is a key part of HM Revenue & Customs (HMRC) plan to modernise the UK tax system by making it easier for people to get their tax right. The Government plans to digitise the tax system for VAT, Income Tax, Self- Assessment and Corporation Tax for businesses.
For Income Tax
Making Tax Digital for Income Tax will apply from April 2026. Sole trader businesses and landlords with an income of over £50,000 annually will join first. Those with an income over £30,000 will need to join from April 2027.
This will mean there will be a change to the way tax obligations are managed with HMRC.
Businesses will need to keep and maintain digital records and use MTD compatible software to manage, track and send updates to HMRC. They’ll be required to send HMRC quarterly summary updates of their business income and expenditure.
A final declaration will also need to be made, to include other sources of taxable income such as savings and investment income.
What’s changing?
Before April 2026, businesses were required to:
- Make one annual submission
- Complete paper filings by 31st October
- Submit online filings by 31st January
- Maintain paper records without penalties
After April 2026, businesses will need to:
- Make four quarterly submissions
- Complete one annual ‘Final Declaration’ submission per individual
- Submit online filings via MTD-compliant software
- Keeping digital records
Exemption from Making Tax Digital For Income Tax
Companies earning below £30,000 and general partnerships are not yet needed to join the Making Tax Digital for Income Tax initiative. Currently, these business types are exempt, although this will change in 2027.
Exemptions also apply for sole traders and landlords who are digitally excluded. You can apply for digital exemption if:
- It’s not practical to use software for digital record keeping or submit updates to HMRC – this could be due to age, disability, location, or another reason
- You are a practising member of a religion or order, and their beliefs prevent them from using electronic communications or keeping electronic records
- You are unable to get a National Insurance number, and therefore unable to access HMRC’s online services
- You are a foster carer who would be using the system for qualifying care income
HMRC will either confirm or deny your exemption request. If it’s a no, you will be able to appeal HMRC’s decision.
MTD Timelines for Income Tax
April 2026
Making Tax Digital for income tax will apply for self-employed individuals and landlords with an annual income over £50,000.
April 2027
MTD for Income Tax will be extended to those with income over £30,000.
TBC
HMRC may further extend MTD requirements, but as of now, the focus is on businesses and individuals with income above the specified thresholds.
For VAT
From April 2022, all VAT-registered businesses, regardless of their turnover, were required to follow Making Tax Digital Rules.
MTD for VAT was first introduced in 2019 for businesses with a VAT taxable turnover above £85,000. As of April 1st, 2024, the VAT- registration threshold increased to £90,000.
HMRC automatically signs businesses up for MTD when they register for VAT, unless they are exempt or have applied for an exemption.
What records do I need to keep for VAT?
The records you need to keep have not changed, the only thing that changes is where and how these are stored. For every item, you’ll need to record:
- The time of supply
- The value of supply
- The tax rate
Benefits of Making Tax Digital
- Make it easier for individuals and businesses to get their tax right
- Improved accuracy of digital records
- Less time spent on paperwork
- Reliable record-keeping
- Additional help built into many software products
- Faster returns filings with digital records sent directly to HMRX
What happens if I don’t comply?
HMRC has a points-based system so that MTD for VAT penalties are only given to those who regularly make mistakes and miss deadlines. Those that make the occasional error will not be penalised.
Points are calculated based on how regularly you submit. You can find out more information on the points system on HMRC’s website.
MTD Timeline for VAT
2019
Making Tax Digital was introduced for businesses over the VAT threshold of £85,000
April 2022
Making Tax Digital for VAT was extended to all VAT-registered businesses, regardless of turnover.
April 2024
The VAT registration threshold increased from £85,000 to £90,000. This change affects when a business needs to register for VAT, but all VAT-registered businesses must still comply with MTD.
What does this mean for me?
At Wise, we partner with Beamin’, an HMRC-approved MTD software, to provide the necessary functionality for MTD requirements as they come into effect, ensuring you remain compliant.
Individuals can use Beamin’ to:
- Keep digital records and have all your key information in one place
- Make it simple to prepare and submit your MTD quarterly updates
- Check VAT owed to HMRC
- View VAT payment history
- Complete your Final Declaration when the time comes
