Making Tax Digital Timeline: Key Dates You Should Know
The UK government is taking significant steps to update its tax system. One of the most impactful steps is the implementation of a new system of tax reporting. What is Making Tax Digital (MTD)? As part of the government’s Tax Administration Strategy, MTD will digitalise the tax system and reduce the tax gap. Businesses and individuals in the UK must comply with new requirements for submitting reports and tax returns.
Several components comprise the Making Tax Digital timeline in the United Kingdom. These include MTD for VAT, MTD for income tax, and MTD for corporation tax, plus the rollout of a new penalty system.
- Starting in April 2022, Making Tax Digital for VAT became mandatory for all relevant businesses.
- Starting in April 2026, MTD for income tax will be mandatory for self-employed individuals earning over £50,000.
- Starting in April 2027, MTD for ITSA will be mandatory for sole traders and landlords earning £30,000 to £50,000.
- An official start date for MTD for Corporation Tax has not yet been announced, but the earliest date is 2026.
What we’ll cover:
Overview Of Making Tax Digital
His Majesty’s Revenue and Customs (HMRC) is changing the tax system with the new Making Tax Digital program. The program will require affected businesses to maintain accurate digital records and submit standardised reports directly to HMRC. With this digital for income tax move, the government hopes to reduce the amount of tax lost from avoidable errors and contribute to broader productivity gains.
While companies and individuals may choose to continue maintaining paper records for their financial activity, part of the motivation behind MTD is quite literally to make tax digital. The digital format for record-keeping, plus the secure digital submission of required reports, is less prone to human error or mistakes in the interpretation of handwritten notes.
To comply with MTD requirements, registered businesses will need to start using MTD-compatible software as part of their accounting workflow. HMRC maintains a list of compatible software for this purpose. The UK government is rolling out MTD in phases, starting with MTD for VAT, followed by MTD for ITSA and MTD for Corporation Tax.
Timeline For MTD for VAT
In regards to value-added tax (VAT) returns, the corresponding key dates for MTD for VAT outlined by HMRC span a period of three years. This affects any business that is filing an MTD for a VAT return with HMRC.
- April 2019: MTD for VAT came into effect for VAT-registered businesses that exceeded an annual VAT threshold of at least £85,000.
- April 2021: HMRC mandates digital links for the MTD for VAT program.
- April 2022: All businesses registered for VAT must comply with the new MTD for VAT reporting requirements with no minimum VAT threshold.
Moving forward, any businesses applying for a VAT number for the first time will automatically register for MTD for VAT. There is no VAT registration threshold, and they must comply with MTD requirements from the very first VAT return.
Timeline For The Introduction Of MTD ITSA
Originally, HMRC planned on launching Making Tax Digital for Income Tax Self-Assessment (ITSA) in March 2024. The initial plan included all self-employed individuals, people in limited liability partnerships and general partnerships, and landlords earning at least £10,000 per year.
In December 2022, the UK government announced a delay of two years before MTD for income tax would become mandatory for sole traders and landlords.
- March 2024: The original start date is planned for the launch of MTD for ITSA.
- March 2026: The new start date for MTD for ITSA, announced in December 2022. This applies to Self-Assessment individuals with self-employment income or property rental income over £50,000.
- March 2027: The new MTD for ITSA start date for sole traders or landlords with an annual gross income between £30,000 and £50,000.
- TBD: The government is reviewing how MTD for ITSA might be applied to smaller businesses earning less than £30,000 annually. Expect an announcement from HMRC at a future date.
Timeline For Basis Period Reforms
In October 2021, following a consultation in July 2021, HMRC announced new basis period reform. The reforms are meant to match up with MTD for ITSA and MTD for VAT compliance. These changes also affect sole traders who are not obligated to sign up for Making Tax Digital.
Put simply, the basis period reform states that all affected individuals and businesses must use the tax year as their basis period for reporting. If your business accounting period does not match the tax year, you will need to make this change ahead of the reforms. This basis period reform is to align with the quarterly updates for MTD.
- 2022/2023: This is the last year that uses the existing basis period rules. Your business can continue to use its current accounting period for this tax period.
- 2023/2024: During this transitional year, businesses will need to migrate to align with the new basis period reforms. This could include a transition period between the end of the current basis period and March 31, 2024.
- 2024/2025: For this tax year, all businesses will be taxed based on the new basis period ending March 31 or April 5.
Timeline For The New MTD Penalty Point System
Alongside the changes with the new system for tax reporting is a new Making Tax Digital penalties system for missing a submission deadline for a period statement. The new penalty system timeline corresponds with the relevant facet of the larger MTD program.
- January 2023: The new penalty point system begins for MTD for VAT submissions.
- April 2026: Those mandated to use MTD for ITSA (over £50,000 income) are subject to potential MTD penalty points.
- April 2027: Additional MTD for ITSA businesses and individuals (between £30,000 and £50,000 income) fall under the new penalty points system.
- TBD: No start date has been formally announced for Self-Assessment taxpayers with less than £30,000 of income. It may be as early as April 2027, one year after the start of the MTD for the ITSA program.
- TBD: The new penalty system should apply to MTD for Corporation Tax when that begins as well. This third phase of MTD will not come into effect until at least 2026.
Timeline For The Introduction Of MTD For Corporation Tax
HMRC consulted with software developers, professional bodies, agents, and companies about the introduction of Making Tax Digital for Corporation Tax. To date, HMRC has not yet announced specific details for when this facet of the program will begin. It has stated that the earliest date for mandatory enrollment in MTD for corporations is 2026.
Tips To Prepare Your Firm And Your Clients
Whether you’re a sole trader, a VAT-registered business, or an agency that works with these types of businesses, getting ready for MTD compliance ahead of time is a good idea.
- Confirm requirements: Check to see if you’re obligated to register for MTD for your business. Pay particular attention to the income thresholds for MTD for ITSA.
- Review dates: MTD for VAT is already a requirement for all VAT-registered businesses, but MTD for ITSA has (at least) two key dates to keep in mind.
- Transition accounting practices: A major requirement of MTD is the maintenance of accurate digital records. Make sure your accounting periods and transaction recording systems comply with MTD requirements.
- Use MTD-compatible software: Approved software is necessary to submit MTD reports and your annual tax return to HMRC. You should take this time to familiarise yourself with the new accounting software and ask any questions you may have.
Don’t get blindsided by MTD obligations. FreshBooks MTD VAT Software is fully MTD compliant. It offers all the features you need to comply with MTD requirements, making it easy to manage your business finances and submit reports to HMRC in a timely fashion. Click here to start your free trial today.Additionally, gain comprehensive knowledge about MTD through our Making Tax Digital Guide.
The UK government aims to modernise its tax system with Making Tax Digital. As more people and businesses start using MTD, it will reduce errors in reporting and minimise the tax gap. Business owners benefit from standardised reporting with easy submissions via MTD-compatible software.
Make sure you and your business stay on top of key MTD dates. If you don’t sign up for Making Tax Digital when required, you may face stiff penalties for noncompliance. This includes remembering to file quarterly updates for Self-Assessment Income Tax. The timeline for MTD for ITSA has been pushed back two years to March 2026 for those earning over £50,000. MTD for VAT is now required for all VAT-registered businesses. Be sure to comply with basis period requirements too.
Frequently Asked Questions
Why Is MTD Being Introduced?
The UK government aims to modernise its tax system by transitioning reporting to a fully digital system. By mandating electronic communications for every VAT return and other file returns, they hope to minimise errors in reporting income tax self assessment and reduce the tax gap. This way, taxpayers pay the correct amount.
Who Has To Register For MTD?
All VAT-registered businesses should already be registered for MTD for VAT. For sole traders, people with self-employment income, people with UK property rental income, and other related individuals, registration requirements for MTD for ITSA depend on income level. If you earn more than £50,000, you’ll need to register by April 2026. If you earn more than £30,000, you must register by April 2027.
Can I Still File If I Missed The Deadline?
Yes. You can still file if you’ve missed a deadline, but you may be subject to late penalties and interest charges. Correcting any errors and reconciling your account as soon as possible is best. If you missed the deadline to sign up for MTD for VAT, HMRC should sign you up automatically.
What Are The Potential Benefits Of MTD For Businesses And Taxpayers?
Many businesses may make accidental errors in their accounting, attributed to nothing more than human error. Since MTD requires accurate digital records and quarterly updates, it is less likely that businesses will make these errors. The technology can detect mistakes in real-time so that businesses can correct their errors sooner. MTD is more efficient and should recover the unpaid tax each year due to avoidable mistakes.
Has The Timeline For Making Tax Digital Been Delayed?
Yes. MTD for ITSA was originally scheduled to commence in April 2024, but HMRC delayed its launch by two years to April 2026. This gives individuals, businesses, agents, and the government more time to prepare for the transition.
Can Businesses Opt Out Of Making Tax Digital?
Generally, no. If a business is mandated to participate in MTD, there are very few digital exclusion options for opting out of the program. Individuals and businesses can submit an official request to HMRC to opt-out under religious grounds, if they are in a remote area, or if they have limited access to the internet, for example. HMRC handles these requests on a case-by-case basis.
About the author
Balil Warraich is an ACCA and CPA with over ten years of experience in the financial space. He specializes in accounting, assurance, and taxation services. Balil currently resides in British Columbia, Canada, where you’ll find him at https://www.notioncpa.com/