What is Making Tax Digital?
Do all businesses need to register for MTD?
All VAT registered businesses must comply with MTD from April 2022. That includes sole traders, limited companies, partnerships, charitable trusts, and landlords with at least one UK property.
Originally, businesses had to manually sign up for MTD for VAT. Now, HMRC is automatically signing VAT registered businesses up to MTD. As long as you register for VAT, you won’t need to sign up for MTD for VAT separately. If your business isn’t VAT registered, you don’t need to comply with MTD yet but you may need to sign up for making tax digital for self employed.
Does MTD for VAT apply to limited companies?
Yes. From April 2022, if you run a limited company that’s registered for VAT, you need to follow MTD rules.
When will MTD for VAT be mandatory for my business?
MTD for VAT registered above threshold
For businesses above the VAT threshold, MTD has been mandatory since 2019. If your business is above the VAT threshold (£85,000), you should already be following MTD rules.
MTD for VAT registered but under threshold
All VAT registered businesses must follow MTD rules from April 2022, regardless of turnover. If your business is VAT registered, HMRC will automatically sign you up for MTD for VAT.
MTD for non VAT registered businesses
If you run a business that isn’t VAT registered, you don’t need to follow MTD rules. However, if your turnover goes above the VAT threshold you’ll need to register for VAT and comply with MTD.
If your VAT taxable turnover goes above £85,000 on a rolling 12 month basis, you need to register within 30 days of the month ending where your turnover exceeded £85,000.
Is Making Tax Digital just for VAT?
Yes, for now.
From April 2026, some businesses that file their tax returns via self assessment will need to register for MTD for Income Tax Self Assessment (ITSA). This will apply to businesses and landlords with total business or property above the £50,000 threshold. Some businesses can sign up voluntarily for MTD ITSA now.
What are the benefits of Making Tax Digital for businesses?
Making Tax Digital for small businesses can result in a range of benefits. Using accounting software to submit your VAT return can save you time and help you get your tax right.
According to research by HMRC on MTD for VAT, current participants already feel more confident about filing their return under the new rules.
Benefits of MTD include:
- Fewer reporting errors
- Less time spent on paperwork
- Reliable record keeping
- Faster returns filing
You can use accounting software to automate manual processes, saving you time and improving the accuracy of your accounts.
What records do businesses need to keep digitally for MTD?
The records you need to keep for your VAT return have not changed. What has changed is where and how these records are stored.
For every item, you’ll need to record:
- The time of supply
- The value of supply
- The tax rate
How can I prepare my business before signing up for MTD?
How do I sign my business up for MTD?
How to file a MTD VAT return
This transfer must be digital - you can’t copy and paste records from one platform to another. Instead, you’ll need to use spreadsheet formulas to create digital links.
What happens if I don't comply with MTD?
You could face a penalty.
Making Tax Digital penalties are changing from January 2023. HMRC is moving to a points-based system so that penalties are only given to those who regularly make mistakes and miss deadlines. This means taxpayers who make the occasional error will not be penalised.
Points are calculated based on how regularly you submit. You can find more information about making tax digital fines here.
Need more information on Making Tax Digital for businesses?
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