MTD: The story so far

As time marches on, so too does the landscape of technology and automation. This is the fundamental principle that underpins Making Tax Digital (MTD) – HMRC’s vision to digitalise the UK tax system.

While tax can be a complicated matter, the broad premise of MTD is simple: the age-old paper method for accounting records is no longer viable. Instead, a digital approach will now become the norm.

More specifically, businesses and organisations will be required to submit updates and returns using an HMRC-approved, ‘compatible’ software product. These products will use HMRC’s Application Program Interface platform to submit information.

However, simple as it may seem, there is, unfortunately, no silver bullet for such a drastic overhaul. Indeed, the timeline for the implementation of MTD is long and arduous.

The rollout already spans a three-year period, beginning on 1 April 2019 with VAT-registered businesses with taxable turnover above the VAT threshold (£85,000). This also included sole traders, partnerships, limited companies, trusts and charities, and non-UK businesses registered for UK VAT.

The start date of this phase was deferred for six months, to 1 October 2019, for some more complex businesses.

The remaining VAT-registered businesses (those with a taxable turnover below £85,000) must be MTD-compliant by 1 April 2022.

In two years’ time, we will see the emergence of MTD’s other key component: income tax self-assessment (ITSA). As of April 2024, it will be mandatory for the self-employed and those with property income to be MTD compliant. However, this will only be applicable to those with self-employment and gross rental income above £10,000.

Finally, from April 2025, MTD ITSA will be applicable to general partnerships with a turnover of £10,000 or more.

But there are still numerous hurdles and teething issues to overcome before all businesses can become MTD-compliant.

The first and perhaps most prominent is, quite simply, whether businesses are actually ready for the changes. Old habits die hard, and with an estimated 120,000 businesses having missed the first MTD deadline in 2019, it’s plain to see that accounting is no exception to that rule.

Similarly, the readiness of the software market itself has often been questioned throughout this process, with claims that the process of achieving compliance has been hindered by a lack of simplicity and cost-effectiveness in the tools available.

But the deadlines will, invariably, continue to approach, and the general consensus among key stakeholders is that momentum must be kept.

Businesses and advisers must persist in working together in order to achieve full compliance and contribute to this new era of accounting.

 

Stay up-to-date on MTD with Accountancy Age by bookmarking our Making Tax Digital Hub.

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