Making Tax Digital is an initiative the government have introduced to improve the way UK business tax is managed. It involves moving all pen-and-paper tax returns online.
Since April 2019, VAT-registered businesses with a taxable turnover above the VAT threshold (currently £85,000) have been required to keep VAT records digitally and send returns using Making Tax Digital (MTD) compatible software.
The original changes stipulated that all VAT businesses need to make the change to Digital Tax from April 2022.
Due to economic uncertainty, the government has pushed this date back. The new rules are based on your business's income.
If you earn over £50,000 then you will need to make the switch to Digital Tax by April 2026. These changes will also apply to businesses earning over £30,000 by April 2027.
If you’re a sole trader who earns over £50,000, then by April 2026 you will need to make your tax digital for all your income tax.
If you earn over £30,000 then the same will apply to you from April 2027.
This means you will no longer be able to use traditional tax returns, but will be required to use digital accounting software and submit your tax returns every quarter.
No, MTD is not optional, it is a requirement for businesses earning over £85,000. If your business earns over £50,000 you will also need to make the switch by 2026. However, it is possible to apply for an exemption if it is not possible for you to use computers, software or the internet.
Possible reasons for this might be your age, a disability, where you live or religious grounds.
To apply for an exemption contact HMRC.
For starters, you’ll need compatible accounting software to submit your VAT records to HMRC online. Popular options include Xero, Quickbooks and Sage. Alternatively, you can also submit your digital tax records as basic spreadsheets, as long as you use a bridging software like Zapier.
After you’ve chosen your software, you need to contact your new software provider to help you get set up.
For further details head over to the gov.uk page, ‘Making Tax Digital for VAT’. When you do sign up, you will need your:
So gather this info first.
And if you don’t have a Government Gateway user ID / password yet, that’s fine, you can create them via this link too and bring your tax online at the same time.
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