Making Tax Digital (MTD) is HMRC’s initiative to revolutionise the UK tax system and “digitise“ the annual Self Assessment tax return.
Many software providers are promoting MTD solutions and pushing newsletters on how to become compliant, but the reality is, 99% of the people don’t need to worry until 2023.
What does Making Tax Digital actually mean?
Basically instead of reporting your income and expenses once a year, you’ll be reporting quarterly (every 3 months).
You’ll also have to keep digital records instead of paper receipts.
Does it apply to me?
For the 2020/2021 tax year, only limited companies and self-employed people earning over £85,000 and who are already registered for VAT have to join the MTD scheme.
This is only for VAT reporting at this point – it’s not a huge change, just switching paper receipts for digital records, and using one of the software packages listed on this HMRC page.
VAT-registered businesses with a taxable turnover below £85,000 will be have to follow MTD rules for their first return starting from April 2022.
Should I do anything?
HMRC plans to make MTD available to all sole traders (and also landlords) by next tax year (April 2021). At that point you will also have to use MTD for Income Tax and National Insurance.
This means that you won’t have to do an annual Self Assessment tax return anymore. Instead you’ll have to report your earnings and expenses 4 times a year – and also use one of these pieces of software.
However, HMRC has postponed MTD deadlines before – and it might do again for the coming year as well.
On top of this, people earning income from multiple sources (for example, you’re both employed and self-employed) will likely not be able to use MTD next year either.
In any case, we’re monitoring this, and we’ll help you if and when you need to do anything.