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How does it affect me?
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VAT
The first stage of MTD was introduced in 2019. Since 1 April 2022, all VAT-registered businesses have been required to keep digital records and use MTD-compatible software to submit VAT returns electronically.
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Income tax
Self-employed business owners and landlords with annual business or property income above £50,000 will need to follow new MTD for Income Tax rules from 6 April 2026.
Those with qualifying income of more than £30,000 will have to follow the rules from April 2027. Individuals with qualifying income of more than £20,000 will be included from April 2028. Partnerships are expected to be required to join at a date yet to be announced.
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Corporation tax
HMRC does not intend to introduce MTD for Corporation Tax (CT). They have announced plans to modernise services for Corporation Tax beginning with a renewal of internal systems for CT to provide the foundation for future improvements. HMRC says they will work with stakeholders to identify changes that will provide the best outcomes for taxpayers and government.
What are the benefits of MTD?
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Tax in real time
HMRC will aim to deal with anything affecting tax as close to real time as possible, to help prevent errors and stop tax due or any repayments you owe building up.
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A single tax account
You’ll see a comprehensive picture of your income and any tax due in your HMRC tax account. It’ll be like online banking but with a personalised picture of your tax liabilities.
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Digital contact with customers
Business owners will get prompts, advice and support through webchat and secure messaging.
Making Tax Digital (and simple) with FreeAgent
Making Tax Digital (MTD) for Income Tax and MTD for VAT require all affected businesses to keep digital records and use compatible software to submit their information to HMRC. FreeAgent offers an end-to-end solution for both MTD for Income Tax and MTD for VAT, so you can file to HMRC either directly or with the help of an accountant. FreeAgent is also free with your business current account (optional add-ons may be chargeable and specific account eligibility criteria apply).
Making your business more digital
It’s not just the tax system that can reap the benefits of going digital. If you don’t have a website for your business, you might be missing out on new markets, and if you do already have one, have you considered other ways to do business online, like offering workshops or online events?