Making Tax Digital FAQS
What is Making Tax Digital?
Making Tax Digital (MTD) is the government’s programme for the future of business and personal taxation using digital technology for tax records and returns. MTD aims to make it easier for individuals and businesses to get their tax returns right and to know exactly where they stand in terms of their tax affairs. At the same time, MTD efficiently and accurately helps to protect revenue due to the government from taxpayers across the board. At the time the programme was first announced, the Exchequer was missing out on £9.9 billion of lost tax revenue.
Find out more about MTD here.
When was MTD announced?
MTD was originally announced as part of the Government Transformation Strategy 2017, with a statement of its broad aims:
“By harnessing digital to build and deliver services, the government can transform the relationship between citizen and state.”
The implementation of MTD has been staggered, starting with the launch of MTD for VAT in 2019, initially for businesses with turnover above £85,000.
When is MTD compulsory?
The roll-out of compulsory MTD for VAT records and returns has been:
- 1 April 2019: Vat-registered businesses with turnover above £85,000
- 1 April 2022: All vat-registered businesses
The next date is for Income Tax Self Assessment:
- 6 April 2024: Self-employed and landlords with taxable profits over £10,000
The third tax to fall under MTD will be Corporation Tax, at some point after April 2026.
How do I register for Making Tax Digital?
To register for MTD, and to use any online HMRC services, you need to set up a Government Gateway account if you have not already done so.
To register for MTD for VAT, you will need to sign in to your tax account with your Government Gateway user ID and password, your VAT number and your company registration number. Your accountant can sign up on your behalf.
In the sign up process you will first be asked if you are prepared to sign up for VAT under MTD, with a note that once signed up you will have to file future returns online.
You need to make sure you have MTD compatible software which you can use for keeping records and filing VAT returns.
The self-employed and landlords are not required to sign up MTD for Income Tax until April 2024. Once again, you will need to go through your Government Gateway account, and have MTD compatible software for Income Tax. Software providers have been developing solutions which work for Income Tax under MTD, and more software choices will be available in time for the April 2024 deadline. Certain taxpayers are able to sign up voluntarily in advance, allowing the government to test and develop the service before roll-out.
How long does it take to register for MTD?
The guidance from HMRC is to allow seven days for registration to be completed. A confirmation email will be sent to you within 72 hours after you have signed up.
Am I signed up for MTD?
An email from HMRC following submission of your details will confirm that you have signed up for MTD. HMRC has committed to ending out the email within 72 hours of your submission. If you are unable to track down the email, you must contact HMRC.
Does HMRC provide free software for Making Tax Digital?
HMRC does not provide free MTD compatible software for, but does provide a regularly updated list of MTD software providers for VAT and Income Tax, including suppliers of bridging software.
What is the best free software for Making Tax Digital?
Pricing for most MTD compliant software is tiered according to the range of functions which are covered. Some developers, including leading names such as Sage and Xero, offer free trial periods, while other companies are offering free versions on an ongoing basis.
Free software is generally limited in terms of what it can do, but if listed on the government’s website you can rely on its compatibility with MTD for VAT or Income Tax. Free versions are most likely to be useful for sole traders and smaller businesses with simple tax affairs. Usability and reliability are key issues, and it will pay to research your options before committing to a solution, including talking experts such as our team at AMR.
How much does MTD software cost?
Apart from free offerings, MTD compatible software comes in at a range of prices. Expect to pay around £10-£12 per month for a basic package which will handle a limited number of records, with costs doubling for an intermediate solution, and trebling for a premium plan. Add-ons for functionality which handles issues such as expenses, payroll, project tracking or analytics can add an extra £20+ to the monthly subscription.
Offsetting the costs, MTD opens the way to managing financial records and tax returns more efficiently and more accurately. The process also provides a clearer view of your financial position throughout the year, enabling better planning and decision-making.
What is bridging software for MTD?
Bridging software allows spreadsheets and other programmes to work with the government’s MTD systems. As a result, companies can continue to use spreadsheets such as Excel for recordkeeping and VAT returns. Bridging programmes are available from many suppliers of MTD compatible software, including free versions, and can be found in the government’s list of compatible software for MTD for VAT and MTD for Income Tax.
Who is exempt from Making Tax Digital?
A limited number of organisations and individuals are exempt from MTD for VAT, including any business or organisation which is already exempt for VAT, or any business which is subject to an insolvency procedure.
You are also exempt form MTD if it is not reasonable or practical for you to use computers, software or the internet. Qualifying reasons include age, disability or remoteness. In the case of MTD for VAT you will need to apply for an exemption by calling or writing to HMRC.
Does Making Tax Digital apply to sole traders?
If a sole trader is VAT registered, their VAT records and returns have had to be managed under MTD since April 2022. From April 2024, all sole traders who make taxable profits of more than £10,000 will also need to manage their Income Tax under MTD. The same requirements will also apply to landlords.
HMRC states that MTD is about ‘helping businesses to do their tax right’. MTD provides significant advantages for taxpayers and is also part of the government’s approach to the problem of nine billions pounds of tax lost every year due to errors.
- An accurate, up-to-date view of your tax position
- Easy-to-access information in one place
- Easy to share information with advisors, agents and HMRC
- Better information and better planning
- VAT-registered businesses with taxable profits over eighty-five thousand pounds from 1 April 2019
- Vat-registered businesses with taxable profits of between ten and eighty-five thousand pounds from 1 April 2022
- The self-employed and landlords for Income Tax Self Assessment from 6 April 2023.
Exemptions from Making Tax Digital are for:
- Religious societies
- Individuals and organisations unable to use digital tools due to age, disability or remoteness
- Insolvency
What do clients say about
AMR Bookkeeping Solutions?
Simon Colenutt
MD at CK Office Services Ltd
“Jenny from AMR has been a great help to our company in recent months, as we moved over to using a new accounting software system. The work is always thorough, efficient, and communication is very easy.”
Owner at Akehurst Homes Limited
“Without any practical background in accounts, I found the experience and support provided by AMR to be invaluable, especially when dealing with the complex CIS returns in addition to VAT!”
Alexandra Wood
Holmes Wood Consultancy
“The team at AMR are fabulous, but particularly our bookkeeper Donna. Efficient, helpful, accurate, with a positive can-do attitude and happy demeanour. We couldn’t be more positive about working with her and the rest of her colleagues.”
See more testimonials
Our bookkeeping services
We pride ourselves on providing expert services which cover the essentials of bookkeeping as well as full information for management accounts, credit control, budgets, cashflow and taxation. In addition, we offer a full range of payroll services and support on pensions auto-enrolment. We are also experts in HMRC’s making tax digital initiative, as well as the leading digital accounting and bookkeeping software. We provide training for clients who want to use new technology.
Bookkeeping
Other Services
Payroll & Pensions
Get in touch for a free, no obligation consultation
Find out how AMR Bookkeeping Solutions can provide the right support for your business, send us your details and one of our experts will get in touch with you without delay.
Alternatively, you are welcome to contact us by phone on 01892 559480
You can also pop into our offices in Tonbridge.
