HMRC has announced that the Making Tax Digital programme will be extended to firms with turnover below the VAT threshold of £85,000 from April 2022.
Taxpayers who file self-assessment returns for business or property income of more than £10,000 a year will be brought into the programme the following year.
A new ambitious plan to digitise tax administration will extend compulsory MTD filing to all VAT-registered traders from April 2022 and to most self-employed traders and individual landlords from April 2023.
On 21 July the Treasury set out a first draft of the government’s ten-year plan to modernise the tax administration system. This includes restarting the making tax digital (MTD) program which had ground to a halt in the face of Brexit and the coronavirus pandemic.
MTD for VAT
Currently the MTD regime is compulsory for VAT registered traders who are required to be VAT registered as they have taxable turnover of over £85,000. An estimated one million VAT registered businesses with lower annual turnover are not required to enter the MTD regime as they are automatically exempt on the basis of their low VATable sales level.
The Treasury, confirmed that all VAT registered traders will have to use MTD compatible software to file their VAT returns with effect for VAT periods starting on and after 1 April 2022. They will also be required to keep the VAT records in a digital format.
MTD for income tax
The MTD programme was originally planned to start with quarterly reporting for income tax, but this was delayed.
The revised plan now sets a goal of April 2023 for micro self-employed businesses and unincorporated landlords to commence quarterly reporting through MTD software, and to keep digital records. Around four million unincorporated businesses and landlords with annual turnover exceeding £10,000 per year will be drawn into MTD.