The deadline for Making Tax Digital is approaching fast, and it might mean you need to change the way you do your accounts.

In 2015, the government announced a new initiative to bring the UK's tax infrastructure to the cutting edge of technology. Making Tax Digital (MTD) was designed with the ambition of making tax administration more efficient, effective, and a better user experience overall.

The government had originally planned to have MTD complete by 2020. However, the initiative was paused in 2017 as the speed of implementation was re-evaluated.

MTD is a fundamental change to our tax infrastructure, and as the work started two things became clear from industry feedback – initial timelines for were unreasonable, and speedy change without consultation would break already fragile public trust.

The timeline was extended, and the initial 2019 sign-up goal was limited to VAT and even then, only those with turnover above the VAT threshold.

This first batch to join MTD has been an excellent proof of concept. 83% of those eligible signed up, and 95% of those that submitted their first return successfully.

MTD for Individuals

Based on the success of MTD for VAT, HMRC has felt confident to turn its full attention back to the MTD for Income Tax pilot. The small test group has been running alongside MTD for VAT, having been launched in April 2017.

The initial group allowed HMRC to trial software functions and processed before making the system a live beta in March 2018. This pilot program has remained relatively small. Over a quarter of people polled on their awareness of MTD didn't think the program applied to them. This is likely a result of the focus HMRC, and their software development partners have paid to MTD for VAT.

In an effort to bring development back on track, HMRC has announced a timeline: MTD for Income Tax will be mandatory by April 2024.

Currently, more than 1 million people are eligible for MTD for Income Tax. You can volunteer at any time before it becomes mandatory in April 2024.

What does this mean for me?

If you're a business or a landlord with a gross income of over £10,000, or a UK resident who has (or will) register for self-assessment before the 6^th of April 2023, you'll need to change the way you do your accounts.

You will need to keep your records digitally and submit quarterly updates to HMRC using software compatible with MTD. You can find a list on the HMRC website, and it's being updated as more software becomes available.

This system replaces the annual return. The quarterly summary update will tell HMRC your business income and expenditure (without adjustments), and then at the end of the year you'll need to go through the finalisation process. Finalisation gives you a chance to confirm everything you've submitted so far is correct. This is just like the process for MTD for VAT.

The best part of this is that the software will generate and send the report to HMRC for you – you just need to keep your records up to date.

In return you'll get a snapshot of your tax position as it develops throughout the year, allowing you to budget for your tax bill. The initial work it will require to make your accounts digital will pay dividends in time saved and mistakes prevented.

Even if you don't see the point in volunteering yet, or aren't even eligible at this point, it's a good idea to switch to digital accounting as soon as you can.

Often, we have routines and processes for managing our accounts, and changing them with require a lot of effort – especially if these routines involve multiple people. Better to put in the time now, than be caught unprepared when the deadline arrives. You may find yourself unexpectedly meeting the income requirement close to the deadline, for example, and if you don't sign up on time you will likely have to pay a penalty.

If you're in a partnership with other individuals you'll have to sign-up in 2025, and the same advice applies to you too – it's better to be prepared!

Where to start

You will need to find HMRC approved software to use, a list of which you can find on their website. If you're concerned about costs, there will be free software available – there already is one listed – but more will become available as time goes on.

Take your time to do some research into which software suits your financial needs best whilst being compatible with your technology. Some companies will find this initiative drives them to update their tech.

You can always talk to an accountant – indeed it might be the easiest path, especially if you have a long paper trail. Many accountants (over 33,000!) have already signed up as Agents in order to process MTD for VAT, and so are prepared with their experience of the system to help you.

As ever, there will be ample written guidance to be found on the HMRC website, and it will update over time as the process and functionality of the system changes and expands.

Think you'll need some help?

Don't worry if you find all this confusing. The team at Giltinan and Kennedy can pair their extensive accounting experience with their knowledge of Making Tax Digital to guide you into this new form of tax return. Contact us today to discuss how we can make the process clearer.