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Making Tax Digital

A guide for contractors, entrepreneurs and other business owners

Making Tax Digital, or 'MTD' is the Government's initiative to bring the UK tax system fully into the digital age. Taxpayers have been used to making Tax Returns online as have businesses and companies for some years now, but MTD is the next step up.

Why do we need MTD?

HMRC make the case that people should be leaving behind paper records or spreadsheets in favour of more reliable and accurate electronic software which can link to their systems. Their expectation is that using this software will deliver accurate calculations of tax liabilities and timely payment of what is due.

What sort of software is needed?

This ‘compatible software’, recognised by HMRC and available from many commercial providers, must be able to link directly to HMRC and provide for the uploading of data relating to the tax liabilities of these individuals and businesses. MTD software should provide HMRC with regular quarterly submissions of business income and expenses with an end of year statement and declaration by the taxpayer. 

When is MTD being implemented?

Contractors and other business owners who trade through their own limited companies and who are VAT registered (because, for example, their turnover is in excess of £85,000 per year) will be aware that they are already participants in the ‘MTD for VAT’ system with income and expenditure details being uploaded as part of their monthly or quarterly VAT Return filing obligations.

MTD for VAT became mandatory for all VAT-registered businesses (sole traders and limited companies) over the threshold in April 2019 and this has been extended from April 2022 to all VAT-registered businesses. The HMRC online VAT Return Portal closed on 1 November 2022 and Returns can now only be filed via MTD for VAT software.

What other taxes will be affected and when?

From April 2026 MTD for Income Tax and Self-Assessment will come into force, affecting all self-employed individuals with a turnover of more than £50,000, including landlords with income from property letting in excess of that figure. From April 2027 the minimum income threshold will be reduced to £30,000 to bring more individuals into MTD. A review into bringing those below this threshold into MTD will be carried out. Although a timeline is not currently known, there is an intention that MTD for partnerships and MTD for corporation tax will also be introduced. 

HMRC now receives personal financial data for individuals directly from an ever-widening variety of sources such as employers, pension companies, banks, and other financial institutions. So, it’s likely that the process or even the need to file a Self Assessment tax return may be reviewed and overhauled soon.

How can I find out more about MTD?

PayStream has been involved with MTD from the outset. Please contact us directly for further advice on MTD and how it may impact your business.

FAQs for contractors, entrepreneurs and other business owners

We get a number of questions regarding MTD and below, we share a few of these, together with our answers. We hope that they may be helpful for anyone wanting to know more:

The threshold for registering will initially be £50,000, so if you are receiving less than this you won't be required to register in the initial wave.

If you have an accountant, we recommend that you speak to them about any change you will need to make. If you don’t have an accountant and you’re not sure whether your existing software is recognised as suitable for MTD we suggest you look at the GOV.UK website

New penalties came into force on January 2023 connected with the late submission of VAT returns, default surcharges and interest on overdue VAT. The system has changed to a points based one designed to give a little more leeway to the accidental late filer and focus more on the serial non-compliant taxpayer.

 No. They encourage businesses and taxpayers to consult their accountant or review the available software on the GOV.UK website.

If you’re an existing PayStream client and believe that you are likely to be affected by it and need further advice or clarity about its impact, please don’t hesitate to contact your dedicated accounts team by calling 0161 923 0201 (option 3).

Alternatively you can call 0161 923 0201 or click below for more information on our range of bespoke accountancy services.

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