Making Tax Digital (MTD) is the Government’s flagship policy to transform the UK’s tax regime into the world’s most digitally advanced tax system in the world.

Following the extension of MTD for VAT to all VAT-registered businesses, MTD for income tax will be the next development of the scheme.

MTD for income tax is set to be introduced in April 2024. 

However, that date is not set in stone as it was supposed to begin its rollout in April 2023, but was pushed out to a year later to help businesses as they recover from the pandemic.

Regardless, now is the time to get ready for MTD for income tax so you can get ahead and perhaps even start benefiting from the system today.

Who will MTD for income tax effect?

MTD for income tax will affect most self-employed taxpayers with business or property income over £10,000 a year – for now, general partnerships are excluded.

Under the scheme, unincorporated businesses will have to file quarterly returns before the 5th of August, November, February and May.

You will also have to file an end-of-period statement on 31 January after the tax year you are filing for.

From 6 April 2025, most unincorporated business partnerships that have business or property will have to abide by MTD for income tax rules.

The date at which all partnerships, including limited liability partnerships, will have to join is unclear.

Accounting software

To stay compliant with MTD, you must use cloud accounting software that is linked to HMRC’s systems.

HMRC has a full list of software you can use, including Xero and Sage.

Cloud accounting software can do more for you than just keep you MTD-compliant, however. 

They allow you and your accountant to view your financial data in real time, while some let you automate systems outside of tax, including payroll and payment approvals. 

There are so many out there with their different quirks and a variety of optional app instalments that it can be tricky to pick the right one, so make sure you reach out to us for advice on which you should choose.

You might also want to join the MTD for income tax pilot scheme which allows you to use MTD systems early.

This is advantageous – not only will you be ahead of your competitors when they have to join the scheme, but streamline your accounting to save money.

What else you need to know

Most VAT-registered businesses with a taxable turnover above the VAT-registration threshold (£85,000) will be familiar with MTD, having joined MTD for VAT in April 2019.

From 6 April 2022, MTD for VAT will be expanded to include all VAT-registered businesses.

MTD for corporation tax is scheduled for 2026 at the very earliest, while the pilot scheme is due to begin in 2024.

Talk to us for more advice on MTD.