Many of you may have heard the word on the street; others have covered their ears, shut their eyes and hummed really loudly. Because, let’s be honest, changing with the times can bring many benefits, but it can also be exhausting on the ol’ grey matter…especially those with a few more years behind us. So, these changes, what are they?

For many years, making tax digital has been a key part of the government’s plans to make it easier for individuals and businesses to get their taxes in check and keep on top of their affairs. www.gov.uk states that it is about ‘transforming tax administration so that it is more effective, more efficient and easier for taxpayers to get their tax right.’ It sounds somewhat scary, but there is no denying that it makes sense. It is just about adapting to something new.

What Is MTD?

MTD stands for ‘Making Tax Digital’; in simple terms, it means changing how you send your tax information to HMRC, from manual paper-based methods to digital submissions. It sounds simple, and it has been so far for most tech-savvy businesses. And for others, with some guidance, the move should be smooth. It will soon become the new norm if everyone is prepared with the relevant knowledge…so here’s your early warning! You can thank us later.

Under the new rules, businesses must keep digital records of their income and expenditure and send a quarterly summary and an end-of-year report to HM Revenues and Customs (HMRC). Those mandated to use MTD VAT must use compatible software to digitally receive information from HMRC via HMRC’s Application Programming Interface (API) platform.

When the original changes occurred for businesses over the VAT threshold back in 2019, over a quarter of VAT-registered businesses below the threshold still voluntarily chose to join MTD VAT. This just proved that a modern, digital approach to managing tax works for businesses of every size and has been welcomed with open arms. Why? Because the move to digital tax administration eliminates many of the existing paper-based processes, reduces errors and allows businesses to devote more time to running their business instead of correcting mistakes.

When Did the Changes First Start?

The transformation of MTD VAT started in April 2019 for businesses with taxable turnover above the VAT threshold. MTS VAT was then extended to all businesses from April 2022. Things have continued to progress since then, and even more changes will soon be implemented across the country. From April 2024, MTD ISTA (income tax self-assessment) will commence for the self-employed and those with income from property. April 2025 will see things kick off for most partnerships, and the final stage of MTD corporation tax is not due until April 2026 at the earliest.

As discussed, MTD VAT is being implemented in phases, focusing on different taxes and types of business. Everyone loves a timeline so let’s look at the separate stages in further detail from 2019 through to the planned future changes (as taken from the www.gov.uk website):

 

Timeline for the MTD changes:

  • From April 2019: MTD VAT became mandatory for VAT-registered businesses and organisations (including sole traders, partnerships, limited companies, non-UK businesses registered for UK VAT, trusts and charities) with taxable turnover above the VAT threshold. There was a six-month deferral of the start date, to 1 October 2019, for some more complex businesses.
  • From April 2022: MTD VAT became mandatory for all VAT-registered businesses and organisations.
  • From April 2024 (originally planned for April 2023): MTD ITSA will be mandatory for the self-employed and those with income from property. It will only apply to those with turnover from self-employment plus gross rental income over £10,000.
  • From April 2025: MTD ITSA will be mandatory for general partnerships (ie. not limited liability partnerships or partnerships with a corporate or other ‘non-natural partner’). It will only apply to partnerships with a turnover of £10,000.

 

What Do the New Changes Mean for Home Owners?

In the UK there are 4.2m taxpayers with business and/or property income over £10,000, including landlords, sole traders and partnerships. The MTD requirements will be extended to these taxpayers from April 2024 and will apply to businesses, self-employed individuals and landlords who are chargeable to income tax. The plans were originally due to be implemented in April 2023, but due to the challenges business owners have faced during the Covid pandemic, the government agreed to push this back an extra year. See, they aren’t all bad after all…

The changes will mean that landlords will each have a single digital account with HMRC, to which they will have to submit an update of their income and business expenditure every quarter. They will do this online, either using their own software or using software provided by HMRC. Being able to do it from their smartphones is also a big bonus…and convenient. Following the announcement, most landlords seem ready to go digital and see the changes as a positive rather than simply a pain in the proverbial. A study from the Residential Landlords Association tells us that 48% of landlords use spreadsheets for record keeping and 13% already use specialist software. This means that just 38% still use paper records.

The benefits will include seeing how much tax is owed at any point throughout the year rather than waiting until filing the annual end-of-year tax return. For landlords who are genuinely unable to submit digital updates, such as those who can’t get online or haven’t fathomed how to use new technology, HMRC has promised extra help and support. There may be some scepticism about this so-called ‘support’, but the bottom line is that it is happening, and in the long term, we believe it to be positive…we just need to come out the other side without our brains too frazzled.

With some early education, a little preparation, and a cheesy quote (with an undeniable element of truth), we can all enter this new phase one step ahead of the game. Good luck, and here’s to a digital future!

‘Give me six hours to chop down a tree, and I will spend the first four sharpening the axe.’

Abraham Lincoln