HMRC’s Making Tax Digital (MTD)

HMRC’s Making Tax Digital (MTD) initiative is making some fundamental changes UK tax systems and procedure for the UK businesses. MTD offers a modern digital service that helps businesses get their tax right the first time, not only reducing the tax loss due to avoidable mistakes, but also reducing the cost, uncertainty and worry that companies face when HMRC looks forced to do so. intervene to fix things.

MTD for VAT regulations had two phases and therefore came with two corresponding deadlines:

  • Companies that are in the first phase in April 2019 are asked what requires the use of a “bridge software” for the telematic filing of VAT returns.
  • For the second phase, taxpayers must establish “digital links” between all their data from the source system to the final return values. HMRC announced this year an extension from the previous April 2020 deadline to April 2021.

Meeting the requirements for the second phase is much more complex and challenging for businesses, as it requires evidence of an uninterrupted digital journey of a transaction from source systems to VAT reports.

We cannot you tell what impact MTD will have on your business processes and methodology.  However you need start planning for digital record keeping.  To help, we’ve created a unique resource of information, valuable insights, and trusted answers from leading industry experts.

According to MTD, taxpayers will submit summaries of their income and expenses to the HMRC at least four times a year. HMRC says this will allow for a more continuous and accurate projection of taxes due, unlike the current system of a tax bill at the end of the year. To do this, taxpayers will need to integrate their accounts with the software in some way. The response to the 2017 HMRC inquiry indicated that spreadsheets can be used if the technical requirements of the HMRC can be met. [3] However, many taxpayers will use more comprehensive accounting software to avoid the complications of linking a spreadsheet to their digital tax account.

making tax digital


Making plans Digital HMRC Tax involve small businesses and freelancers who complete statements and extracts digital tax, with the ultimate goal of eliminating paper altogether. HMRC says that through MTD they are trying to make it easier for individuals and businesses to get their taxes right.

In 2015 HMRC introduced the personal tax account; a digital tax account aiming to make it easier for people to manage their taxes. In the first phase of the MTD in 2019: the digitization of VAT, requiring you to keep digital records and using accounting software for VAT tax returns.

Eventually, keeping paper records will not meet the requirements of the tax law.


Digital Tax Deadlines

  • HMRC is gradually Making Tax Digital, step by step. The creation of digital taxes for VAT started on April 1, 2019 and affected VAT registered companies with a taxable turnover above the £ 85,000 VAT threshold. Then all VAT registered businesses must comply with Making Digital Tax for VAT as of April 2022.
  • And beginning in April 2023, self-assessment taxpayers will be required to comply with Making Tax Digital for Income Tax.
  • As of April 2019, VAT companies registered with taxable turnover exceeding £ 85,000 VAT threshold must digitally register and re-submit VAT using compatible digital software. Some ‘more complex’ companies received a six-month deferral (read more below)
  • October 2019: The most complex companies that were deferred must comply with Making Tax Digital
  • From April 2022, MTD will be mandatory for companies with a turnover below the VAT threshold of £ 85,000
  • April 2023: MTD will also apply to those taxpayers submitting income tax self-assessments for business or real estate income over £ 10,000 a year.


Digitization of Taxes for Companies

At the moment, Making Tax Digital only affects companies registered with VAT, but eventually all companies will have to comply.

Here’s how to register for digital tax harmonization, making sure you go through the correct phases.

making tax digital

Digitization of VAT

Companies registered for VAT with taxable turnover above the threshold for registration of VAT (currently £ 85,000) now have to keep records digital and digital filing VAT. For many companies, this refers to accounting periods beginning on (or after) the April 1, 2019 Making Tax Digital deadline.

If your company has a turnover of taxable under the VAT threshold, you can still register for Making Digital Tax voluntarily. HMRC will encourage this, as according to them, the software will help you “better understand how your business is performing.”

The British government announced in August 2020 that companies below the VAT registration threshold would have to use Making Digital Tax from April 2022.


HMRC says that the digital records you must keep include:

  1. Trade name and contact details
  2. Vat number and details of the schemes used
  3. Vat on supplies made and received
  4. Adjustments to returns
  5. Delivery time (fiscal point)
  6. Vat rate applied to deliveries made
  7. Operations with withdrawal (if your software is not registered, you need to register twice to complete the offer and feed received)
  8. Gross daily income (dgt) if you use a retail scheme
  9. Taxable purchases active on the use of flat rate plan
  10. Value of sales made and total tax on production of purchases from the gold accounting plan (if applicable)
  11. Documents covering various supplies made or received on behalf of your company (by volunteers, companies or third party employees)
  12. You must use compatible software to file your returns which can extract information from your digital records, that must be kept for up to six years.

It is possible to use spreadsheets to calculate and make summaries of VAT transactions and extract the information you need to send to HMRC. But finely, you have to use compatible software to this data for tax returns. You will also need what HMRC calls “bridge software,” . This software will convert your records to the correct format before sending them.

making tax digital

Digital Taxes for Individual Merchants

Making Digital Tax for Income Tax will launch successfully in April 2023 for the self-employed and homeowners earning more than £ 10,000 a year. So while not required (yet), if you complete a self-assessment tax return, you can enroll in a pilot digital tax return program.

The pilot allows you to digitally maintain records and submit income tax updates to HMRC instead of submitting a self-assessment tax return.


Contact Total Tax Accountant for more information.