Making Tax Digital (MTD) is a key step towards the UK government’s ambition to operate a modern, digital tax service. It’s an initiative designed to make tax administration more effective, efficient and, ultimately, easier to get right.

But what does it mean for your business? We’ve provided a breakdown below…

What is MTD?

MTD was announced in 2015, but the first phase – MTD for VAT – didn’t come into effect until 2019 and was only extended to all VAT-registered businesses in April 2022.

The second phase is MTD for Income Tax – a replacement for the existing system of annual Self Assessment tax returns. MTD for Income Tax will be mandatory for self-employed business owners and landlords from April 2024, and from April 2025 for partnerships with individual partners.

After that, the next phase of the government’s plans will be MTD for Corporation Tax, though this won’t be implemented until 2026. In the meantime, they’re expected to offer businesses an opportunity to take part in a pilot and share their views – much like they’re doing for MTD for Income Tax…

What does MTD for Income Tax involve?

Given that MTD for Income Tax is due to come into effect soon, it’s worth knowing which businesses it applies to, as well as how to file digitally and how frequently.

In its earliest stage, MTD for Income Tax will affect self-employed business owners and landlords with an annual income of £10,000 or more. Under the new rules, you’ll be required to maintain digital records of all your business income and expenses – including any earnings from self-employment or property. The earlier you can do this, the better.

You’ll also need to use MTD-compatible software to provide HMRC with a summary of your business income and expenses on a quarterly basis. In order to finalise your business income at the end of the tax year, you’ll need to submit an end of period statement (EOPS) for each source of income – along with a final declaration in place of the existing Self Assessment tax return.

Am I eligible for the pilot?

If you’re interested in participating in the government’s pilot scheme for MTD for Income Tax, you’ll need to record your income and expenses using MTD-compliant software. You can sign up for the pilot using your software or, if you’d prefer, our experts here at Nabarro Poole can do it on your behalf. We use cloud accounting software that’s MTD-ready and makes managing your finances a breeze.

Have any further questions about MTD for Income Tax or whether you’re eligible for the pilot? We’re more than happy to answer them. Get in touch with us today.

Photo: HMRC