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Making Ta Digital

What is Making Tax Digital?

Making Tax Digital, or ‘MTD’ is HMRC’s plan to digitize the UK tax system.

MTD for VAT has been in place since November 2022 and the is already in effect and Making Tax Digital for Income Tax Self-Assessment, or ‘MTD for ITSA’ , which has been delayed on several occasions is due to come into effect in April 2026 for self employed business owners and landlords with income over £50,000

The changes mandated by the UK government to Income Tax reporting those above the £50,000 threshold are the most significant changes to the UK tax system in its history and will significantly change how accountants and their clients work together. 

We will be working with our clients to make this transition as easy and stress free as possible.

Who will this apply to?

Under MTD for ITSA rules, self-employed people and landlords earning above £10,000 will need to use MTD-compatible software to keep digital records and submit updates to HMRC. The good news is that we have done the research and already use digital software packages in conjunction with many of our clients, so we’re well-placed to advise and help you choose the right solution for you.  We have achieved Platinum Partner status with market-leading cloud accountancy software provider Xero and therefore we know our clients are in good hands. Read more about our Xero Partner Status here.

What is the current MTD Income tax timetable

MTD for VAT has been mandatory from 1 November 2022 for all VAT registered business and organisations

From April 2026 self-employed individuals and landlords with business turnover above £50,000 will be required to send a summary of quarterly income and expenses at the end of each quarter.

The new quarterly submission deadlines are as follows:

After the quarterly submissions have been made there will be an opportunity to make adjustments or make claims for allowances like capital allowances and finally to make an End of Period Statement (EOPS) and a final declaration will need to be submitted on or before 31 January the following year so the first EOPS will need to be submitted on or before 31 January 2027.

So instead of the current one  existing annual Self-Assessment return , there will be six submissions required under MTD for ITSA .

As there is an increase in compliance reporting this will , unfortunately , lead to an increase in fees , however it is impossible to say how much until HMRC  releases further information on the format of the submissions.

What happens if I don’t comply with MTD?

As you would expect HMRC have stated they will levy penalties for non MTD compliance. You can view these penalties here.

What should I do next?

The good news is that if you are already using Xero to submit your VAT return then you have nothing to worry about, we will take care of all your quarterly MTD for ITSA reporting on your behalf.

However if you are not VAT registered but have income of more than £50,000 and are still using excel or manual records we would urge you to start thinking about converting to Xero soon  so you have your systems in place well before April 2026, not after. By getting you set up in advance we can help you get used to the new software and reporting requirements well in advance of the April 2026 deadline.

We will be preparing for this change in early 2025 by appointing each client with an ‘MTD hero’ who will guide you through this process, as well as offering MTD clinics during which we will get you set up on Xero and on the road to MTD.

Email communications from us and clinic dates relevant to you and your business will be sent out in early 2025.  At these clinics you will meet your MTD hero from the Exchange team and we will do the transition to Xero for you. There will be a number of dates and times for you to choose from and once this step is completed, we can do the rest for you, allowing you to focus on what matters most, running your business.

In the meantime, we recommend that if you are using a personal account for a mixture of business and personal, that you should open one bank account for each in order to streamline your accounts. This is your first step on getting ready for MTD

Making Tax Digital is coming and we are here to help. If you have any questions or queries regarding MTD, contact us today and follow us on social media for up-to-date information.

We have now seen the response of HMRC to representations made by accountants and other interested parties to their Making Tax Digital (MTD) agenda.

A reminder that MTD will result in the gradual digitisation of small business (including landlords) reporting to HMRC. The present proposals will oblige smaller businesses to upload quarterly data to HMRC from April 2018.

HMRC’s response included a number of relaxations, primarily:

Unfortunately, HMRC has not changed their approach to other key issues. For example:

MTD will eventually replace Self Assessment. In principle, pushing the majority of the data that is required to calculate tax liability into an individual’s personal tax account with HMRC is probably more efficient than the present Self Assessment regime where data is sent to HMRC by the tax payer and then checked against data uploaded by third parties, banks and employers for example.

All eyes will be turned towards the fine print published on this issue next week. Let’s hope common sense prevails.