What is Making Tax Digital in the UK? Review of Making Tax Digital in the UK

HMRC is implementing this initiative and working closely with accounting software developers to ensure taxpayers can make the switch to digital tax. The changes outlined apply to a wide range of taxpayers, including most businesses, micro-enterprises, sole traders, landlords, as well as individual taxpayers.

Under Making Tax Digital, taxpayers will send HMRC a summary of their income and expenses at least four times a year. HMRC says this will help to make more ongoing and accurate forecasts of tax payable, rather than the current system of one tax bill at the end of the year. To do this, taxpayers will need to integrate their accounts with the software in some way. HMRC's response to a consultation in 2017 stated that spreadsheets could be used if they met HMRC's technical requirements. However, many taxpayers will use more comprehensive accounting software to avoid the complexity of linking spreadsheets to their digital tax accounts.

Planned implementation time

Making Tax Digital is a phased rollout programme that began in early 2016. Key milestones include:

- From July to December 2017, HRMC implemented a private pilot.

- The "VAT Digitalization" pilot was officially launched in the spring of 2018.

- VAT registered businesses with a taxable turnover above the VAT threshold (£85,000) in April 2019 are required to keep digital VAT records and submit returns using Money Tax Digitalisation (MTD) compliant software.

- From April 2021, all UK VAT registered businesses exceeding the registration threshold of £85,000 will need to submit returns through the new APl interface with HMRC.

- VAT registered businesses with VAT-chargeable sales of less than £85,000 in April 2022 will need to follow the ‘digital taxation’ rules for their first VAT return from April 2022 or later.

- The digitisation of self-assessment tax will be introduced in April 2024, requiring self-employed businesses (self-employed persons filing a Self Assessment) and landlords with an annual turnover of more than £10,000 to comply with the MTD rules for self-assessment of income tax from 6 April 2024.