Making Tax Digital for Small Businesses: Our Guide

Making tax digital (MTD) is a must-know for business owners. We’ve made an easy guide on what this new UK government scheme is and how it can affect you. Read on to find out more about MTD for small businesses.

What is making tax digital (MTD)?

Making Tax Digital is a scheme from the UK government that holds your tax records online in the digital tax system. You can also make electronic tax submissions. The aim’s to reduce mistakes made by business owners and to ensure that they look at (and submit) their numbers more frequently.

Taxpayers will keep these digital records using a software that is MTD compatible.

Can I use MTD for my small business now?

MTD was initially rolled out in April 2022, but it won’t be finished until a later date. Depending on the threshold for each roll out, your small business may be eligible.

See when you will meet the threshold by seeing the timeline below:

April 2022

MTD is available for VAT reporting for all VAT-registered businesses.

April 2026

You will be able to use MTD for income tax if you’re self-employed/a landlord with income over £50000

April 2027

You will be able to use MTD for income tax if you’re self-employed/a landlord with income over £30000

Later roll outs (Date unconfirmed)

You will be able to use MTD for income tax for partnerships.

When does my business have to join the MTD scheme?

If you earn income as a landlord or sole trader before 6th April 2025, you can join the MTD scheme after you’ve filed your first self-assessment tax return.

However, if you are registered for self-assessment before 6th April 2025, a UK resident, and are in the threshold, you will need to sign up and declare foreign and domestic earnings.

Note that if your small business earns below £30,000, using MTD for income tax does not apply to you currently. You will need to use it for VAT reporting, however. There is also a possibility for changes to this in the future.

How does MTD affect small businesses?

There are a few ways that Making Tax Digital will affect businesses across the UK. We have laid some of them out below:

  • Instead of sending summaries annually, you will now send them to HMRC every 3 months. If you are eligible to use MTD, the paper system will no longer be in place.
  • When you submit your figures quarterly, HMRC will give you an estimate of the tax you owe. However, you will still only pay once a year and this time of year will not change with the MTD system. This system is made for updates, not tax returns so your final figures will be sent to you by the 31st January, as usual.
  • Submitting your figures more often means you can keep a track of how much tax you owe so you can budget accordingly.
  • All VAT registered companies will be required to use MTD for VAT reporting – you are no longer able to use your existing VAT account to send returns

MTD for small businesses – what do I need to do?

If you’re eligible for Making Tax Digital, there are some actions you will need to take and there are some best practices to keep in mind.

  • MTD bookkeeping will be different to the paper system. To make sure you can keep a digital record of your taxes, you’ll need a government approved MTD-compatible software.
  • You can also speak to your accountant regarding the new system. SixtyFour8 can help with your MTD accounting – simply contact us for more information.
  • Make sure you submit your quarterly records on time – there is a possibility of penalties if you do not.
  • You will still need to keep all of your business records as evidence. This way, you can prove what you have submitted in the MTD online system.

We hope this article on the new Making Tax Digital government scheme was helpful. SixtyFour8 are here to help with any enquiries, so don’t hesitate to ask!

Did you also know about the April 2023 corporation tax rises? Make sure to check out our article for more information next.