10 Things you should know about Making Tax Digital

Written by Mark Williams

Compiling a Tax Return - Making Tax Digital

Key facts for freelancers, contractors, sole traders and limited company directors

Making Tax Digital will bring about fundamental changes to the UK tax system. So, how will it affect your small business?

1 Making Tax Digital is a key to government’s plans to “make it easier for individuals and businesses to get their tax right and keep on top of their affairs”. HMRC wants to become one of the world’s most digitally advanced tax administrations.

2 Making Tax Digital seeks to transform UK tax administration so that it’s more effective and more efficient. Crucially, says the government, businesses won’t have to wait until the end of the year to find out how much tax they owe.

3 Making Tax Digital won’t affect businesses and self-employed people turning over or earning less than an as yet decided threshold figure (£10,000 a year was suggested during consultation).

4 Your business or accountant will need Making Tax Digital-compatible software to be able to report financial data to HMRC. Businesses or their accountant will have to update HMRC every quarter with their financial data (online via their digital tax account).

5 In October 2018, the government opened its VAT pilot to half a million businesses in the UK, ahead of its plan to introduce radical new rules in April 2019.

6 Businesses with a taxable turnover above the VAT threshold (£85,000) will have to keep digital records and use Making Tax Digital-compliant software to submit their VAT returns from 1 April 2019. A few VAT-registered businesses with “more complex requirements” are exempt until 1 October.

7 Businesses with a taxable turnover below the VAT threshold can also voluntarily sign up for Making Tax Digital for VAT. The deadlines for filing VAT returns and making payments will remain the same after April 2019.

8 Some businesses are already maintaining digital records and providing updates to HMRC as part of a live pilot to for Making Tax Digital for Income Tax. This will eventually do away with the need to file a self-assessment tax return, as data will be sent to HMRC via Making Tax Digital-compliant software.

9 MTD for Income Tax will not be mandatory until April 2020 at the earliest. When introduced, businesses will need to maintain digital accounting records using MTD-compliant accounting software (a paper-based system won’t be allowed). MTD for Corporation Tax is likely to be introduced for companies in the next few years.

10 To support small firms, the government has published a range of Making Tax Digital webinars and videos that explain how to use software to send data to HMRC if you’re an agent or business.

Mark Williams - writer, content specialist

Mark Williams is a freelance editorial consultant, writer and SME content specialist with over 25 years' experience. He contributes to The Guardian Small Business Network and planned and wrote the Start Up Donut website. As well as award-winning magazines and websites, his writing has featured in national newspapers and Sunday supplements.

You can find out more about Mark's work on his website: