When do I have to make tax digital?

In the past couple of years, you might have heard the phrase ‘make tax digital’ (MTD) being thrown around a lot. In particular by government bodies such as HMRC. 

But don’t worry – this isn’t a new form of tax you’re going to have to pay. Rather, it’s just a term that is being used to describe the switch to a fully digital tax service. If you run a business, work for yourself, or rent out property as a landlord, it’s very important that you know what making tax digital is. And when you have to do it. 

If you fall into one of these categories and want to know how long you have to make tax digital, take a read of our blog below!

How long do I have until I need to make tax digital?

The deadline for when you need to make tax digital depends on what type of tax you need to pay. This is because HMRC is still rolling out MTD gradually. Businesses and taxpayers have time to organise and plan ahead for the switch. 

Currently, Making Tax Digital only applies to VAT-registered businesses. But eventually, all businesses and self-employed taxpayers will have to comply with these new changes.

VAT-registered businesses

If you run a VAT-registered business then you’ve already missed the deadline! 

In April 2019, MTD was only applied to VAT-registered businesses with a taxable turnover above the VAT Threshold (£85,000). But, MTD came into full effect for all VAT-registered businesses on 1st April 2022. 

This means that if you own a VAT-registered business (even if you’re only voluntarily registered for VAT), you need to keep digital records and send digital VAT returns using MTD-compatible accounting software. You can find a full list of compatible MTD accounting software on HMRC’s website.

If you haven’t already, sign up to make tax digital for your company here.

Sole traders, the self-employed and landlords

If you’re self-employed or a landlord and you make over £30,000 – £50,000 annually, then Making Tax Digital will come into effect for you with Income Tax in April 2027, but if you’re earning over £50,000 then you’ll need to switch over by April 2026.

MTD isn’t compulsory for you yet, but you can sign up for a pilot scheme that lets you send Income Tax updates to HMRC instead of filing a Self Assessment tax return. 

This will help you to get used to making tax digital before the 2026 deadline. 

What about Corporation Tax? Will that be made digital too?

It looks that way, yes. 

Although there’s not any set date for when Corporation Tax will need to comply with MTD, it’s believed that HMRC will confirm a date soon. Word on the street is that it will be introduced no earlier than April 2026. 

Plenty of time to prepare!

What happens if I miss the MTD deadline?

You’ll be fined 😱

But, don’t worry if you’ve missed the April 2022 deadline for VAT.

The new fines for MTD for late submissions only apply from 1st January 2023. They had been due to start at the same time MTD was fully rolled out for VAT, but due to an IT issue, HMRC has moved the date back by nine months. Classic. 

Under the new rules, businesses will receive a ‘point’ every time their submission deadline date is missed (similar to speeding fines). When you’ve built up a certain number of points, you’ll be required to pay a £200 fine. 

Alongside the penalty points system, HMRC is introducing a new late payments penalty system that could see late payers being fined up to 4% of the outstanding amount daily.

Need help understanding how to Make Tax Digital?

If you’re self-employed or run a small business and are confused by the recent MTD changes, then don’t worry. Get in touch with us for some simple, one-off tax advice from one of our accredited accountants. You can learn more here.