Making Tax Digital (MTD) is a government initiative to make tax administration more efficient.
Under MTD, individuals and businesses need to keep digital records, use accounting software that complies with MTD standards, and submit updates every quarter.
These submissions generate an estimate of your tax bill, giving you a clearer picture of what you owe.
The first stage of MTD, MTD for VAT, is already in effect, and requires all VAT-registered businesses to maintain digital records and use compatible software for VAT returns.
What are the benefits of MTD?
1. MTD helps individuals and businesses keep records accurately, making it easier to manage cash flow. With more frequent financial updates, MTD helps users understand their tax obligations and set aside the right amount, facilitating better business decisions.
2. MTD enables quicker identification of mistakes and a convenient way to store receipts for tax relief on allowable expenses. With real-time data and insights, individuals and businesses can maintain accurate records and better manage cash flow.
What is MTD ITSA?
The second stage of MTD is called MTD ITSA, or Making Tax Digital for Income Tax Self Assessment. This stage will replace the current Self-Assessment system. To comply, you will need to use software compatible with MTD for Income Tax. This software should allow you to:
- Create digital records for all business transactions.
- Send quarterly updates of income and expenses.
- Confirm period-end statements.
What happens next?
Once MTD ITSA is active, you will submit quarterly statements, an End of Period Statement (EOPS), and a Final Declaration instead of the usual Self-Assessment tax return.
MTD ITSA will affect millions of individuals and businesses, starting with those meeting specific turnover thresholds:
- Over £50,000 annual turnover from April 6, 2026
- Over £30,000 annual turnover from April 6, 2027
Partnerships will need to follow MTD ITSA in the future, though a specific date has not been confirmed.
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