Making Tax Digital (MTD) is a UK government initiative that sets out a vision for the 'end of the

tax return A tax return is the completion of documentation that calculates an entity or individual's income earned and the amount of taxes to be paid to the government or government organizations or, potentially, back to the taxpayer. Taxation is one of ...

' and a 'transformed tax system', announced in 2015 and originally intended to be in place by 2020.

HM Revenue and Customs HM Revenue and Customs (His Majesty's Revenue and Customs, or HMRC) is a non-ministerial government department, non-ministerial Departments of the United Kingdom Government, department of the His Majesty's Government, UK Government responsible fo ...

(HMRC) states that the main goal of MTD is to make tax administration more effective, more efficient and simpler for taxpayers. HMRC is implementing the initiative and is working closely with accounting software developers to ensure that taxpayers are able to make the switch to digital tax. The outlined changes apply to a wide range of taxpayers, including most businesses, micro-businesses, self-employed people and landlords, as well as individual taxpayers. The first mandatory use of digital methods was for

Value Added Tax A value-added tax (VAT), known in some countries as a goods and services tax (GST), is a type of tax that is assessed incrementally. It is levied on the price of a product or service at each stage of production, distribution, or sale to the end ...

, beginning in April 2019 for many businesses and organisations.

Quarterly tax returns

Under MTD, taxpayers will send HMRC summaries of their income and expenditure at least four times a year. HMRC says this will enable a more ongoing and accurate projection of tax due, as opposed to the current system of one tax bill at the end of the year. To do this, taxpayers will need to integrate their accounts with software in some way. HMRC's 2017 consultation response stated that spreadsheets can be used if they can meet with HMRC’s technical requirements. However, many taxpayers will use more comprehensive accounting software to avoid the complications of linking a spreadsheet to their digital tax account.

Timescale for implementation

A government paper in March 2017 stated that

(VAT) would become the first tax to move to the digital system in April 2019, but would only be mandatory for businesses and landlords with turnover above the VAT threshold (at that time £85,000). Soon after, MTD was removed from the 2017 Finance Bill ahead of the June general election leading to speculation that the programme had been dropped altogether. In July the government confirmed the 2019 timetable, and stated that it would be at least two further years before digital records would begin for other taxes. , the past and future deadlines for the start of mandatory digital filing are as follows.

Exemptions

For Value Added Tax, VAT Notice 700/22 outlines that claims for exemption from MTD can be made on grounds which include: * Where it’s not practical to use digital tools, for reasons such as age, disability or location * Where a business is run entirely by practising members of a religious society (or order) whose beliefs are incompatible with using electronic methods. The same notice allows charities running fundraising events to bundle onto one invoice all supplies received, and the same for all supplies made. An example is given of a church fete run by volunteers.

References

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External links

Overview of Making Tax Digital
– HMRC, updated April 2022 Taxation in the United Kingdom