MTD Business (Making Tax Digital for Business)
HMRC want all businesses to maintain their accounting records digitally. This is known as Making Tax Digital (MTD).
MTD for business affects all businesses including Self-Employed, Partnerships, Limited Companies and many more business types.
MTD Business Explained
For a business to be MTD compliant they must maintain digital records using software. Manual records are no longer acceptable. The software must also be able to link up to HMRC, so that it can send information.
MTD for business commenced in April 2019 with the implementation of MTD for VAT registered businesses.
If you have a business, which is VAT registered please read our detailed MTD VAT section.
For businesses not affected by MTD for VAT. It is anticipated that MTD for Corporation Tax and MTD for Income Tax will follow but not before 2025 at the earliest.
MTD for Income Tax
HMRC are currently piloting MTD for Income Tax. This is very much in the early stages and therefore the actual requirements could be very different. However the pilot does indicate the possible route HMRC may look to advance further.
The MTD for Income Tax pilot is currently open to:
- soletraders with income from one business sector and/or
- income from letting UK propert
MTD for Income Tax Requirements
The requirements are very similar to those of MTD VAT. These include keeping records digitally and submitting the information to HMRC via digital links.
Each Quarter the business must file a minimum of 3 pieces of information. They are income, expenses and profit.
Expenses can be filed as a single total of all expenses incurred. However, businesses must still retain their records split by the different categories. These expense categories are the same as those stated on the self-assessment tax return.
After the four quarterly documents have been filed a final year end document is also filed. As a result, a total of 5 reports are required to be filed annually.
NOTE: MTD for Income Tax is voluntary. The earliest mandatory implementation is currently stated as from 2024.
MTD Business Future Developments
MTD business will expand. We predict below the most likely routes HMRC will take in expanding the digital vision for UK business.
Prediction 1: Businesses with large turnover
The logically next step would be to focus on businesses with large turnover. Many businesses are exempt from VAT and therefore exempt from MTD VAT. Such businesses include landlords.
The high level of turnover, typically means higher profits. For that reason HMRC will be keen to have these businesses included within the MTD regime.
The expected requirement will be to keep records digitally and file 4 quarterly mini profit and loss accounts, along with a final year end adjustment.
Prediction 2: Businesses VAT registered but under £85k turnover
This prediction commenced in April 2022. The closure of the old VAT filing system was in November 2022.
Previously HMRC were required to have 2 different types of filing systems for VAT registered businesses.
Businesses with turnover over £85k were expected to file their VAT returns using MTD software. However, businesses with turnover under £85k could file their VAT returns using the old HMRC gateway portal.
To reduce their own admin and software costs, HMRC will be keen to have all VAT submissions filed under MTD.
Prediction 3: Expansion of VAT Submission reports
We predict that at some point in the future HMRC will expand the MTD VAT submissions to include the detailed VAT report.
Currently only the totals of the 9 VAT boxes are required. However, in terms of software expansion it would be quite easy to expand this to require the individual transactions to be attached.