In a business context, Making Tax Digital (MTD) is HMRC’s requirement for businesses to digitally keep and maintain financial records relating to tax, and to report taxes digitally, via software that’s linked to HMRC’s computers.
Essentially, the introduction of Making Tax Digital means businesses should use computer software for their accounting, so can no longer rely on paper book-based ledgers.
MTD is live as of 1 April 2019 for VAT payments, while other forms of business tax will likely follow from 2020 onward, although at the time of writing the UK government has not yet confirmed this.
VAT-registered businesses above the VAT threshold (currently £85,000) must submit VAT returns via software and keep their VAT records digitally.
Businesses that had a deferred start date of October 2019 now have to adhere to the rules of Making Tax Digital for VAT. They are:
- Businesses required to make payments on account
- Annual accounting scheme users
- Not-for-profit organisations that are not set up as a company
- VAT divisions
- VAT groups
- Public sector entities that are required to provide additional information on their VAT return
- Local authorities
- Public corporations
- Traders based overseas
Other types of business tax, such as income tax and corporation tax, are likely to be included as part of Making Tax Digital in the future.
The ultimate guide to Making Tax Digital
Is your business ready for Making Tax Digital? Download this free guide to find out what it means for your business and the steps required to submit VAT returns.