Making Tax Digital & Cloud Accounting

The following sets out the key information surrounding HMRC‘s Making Tax Digital (MTD) Plan.

What is MTD?

MTD is the biggest change in UK tax system for over 20 years. HMRC’s aim is to digitise tax administration in the UK so it becomes more effective, more efficient and easier for taxpayers to get their tax right. Many businesses and individuals already use online banking and platforms to pay bills or communicate with their customers or suppliers. Many are already using online accounting packages. Digitising the tax system is a natural progression of this.

Who is affected and when?

MTD is being rolled out in different phases, covering VAT, Income Tax and Corporation Tax.

MTD for VAT was introduced in 2019 and required all VAT registered businesses with a taxable turnover above the VAT threshold (£85,000) to comply with the new rules. VAT registered businesses with a taxable turnover below the VAT threshold were brought into the scheme from April 2022. HMRC state that ‘taxable turnover’ includes standard, reduced and zero-rated, but does not include exempt supplies or income outside the scope of VAT. MTD will also apply to businesses that operate the Flat Rate Scheme for VAT.

HMRC intends to roll out MTD for Income Tax and Self Assessment from April 2026. This will apply to self-employed individuals and people with property income. MTD for Partnerships and Corporation Tax will follow, although HMRC have yet to announce when these will come into effect.

What are the key changes surrounding MTD for VAT?

VAT registered businesses now have to keep and maintain their business records in a digital format. They also have to submit digital VAT records to HMRC’s online MTD for VAT portal using only MTD compatible software, or risk receiving penalties.

What are the key changes surrounding MTD for Income Tax and Self Assessment?

Also known as ‘MTD for ITSA’, the new income tax filing rules were initially due to come on stream from 2023. This was put back to 2024 to allow taxpayers more time to become compliant. However, a further announcement from HMRC in December 2022 has again delayed the rollout until April 2026.

The criteria for complying with MTD for ITSA also changed. At first, it was to apply to those individuals with self-employed income or property turnover of £10,000 or more. However, MTD for ITSA will apply as follows:

• From April 2026 – self-employed individuals and property landlords with an annual turnover of £50,000 or more.
• From April 2027 – as above but for individual taxpayers with a yearly income between £30,000 and £50,000.

HMRC is reviewing how MTD for ITSA will be rolled out to partnerships and those with an annual income below £30,000.

MTD for ITSA will also change how we submit tax return information. Rather than presenting a tax return once a year (before the 31 January Self Assessment deadline), from April 2026, these individuals will have to submit their income and expenses data every quarter to HMRC, along with an End of Period Statement and a Final Declaration which will need to be filed before 31 January after the end of the tax year.

Individuals will only need to pay any income tax which is due once a year before the 31 January deadline. Individuals will also have to use MTD compatible software.

What will MTD for Corporation Tax involve?

So far HMRC have not released any information about future corporation tax filings, but it is likely to involve submitting CT returns using MTD compatible software on a regular basis.

What is ‘MTD compatible software’?

This is accounting software which allows the digital (online) exchange of your data to and from HMRC’s system. This could also include spreadsheets as long as they are capable of transferring information to and from HMRC’s system digitally using an Application Programming Interface (API), also known as ‘Bridging Software’.

Are there any exemptions from MTD?

HMRC may grant exemptions to MTD on the grounds of age, disability, remoteness of location or for other reasons such as religious beliefs which prevent individuals or businesses from using computers.

What are the advantages of MTD?

As a result of transitioning to MTD, businesses and self-employed individuals will benefit from:

• having up to date financial records throughout the year, not just after the year-end when the final accounts are prepared;
• improved accuracy of their records as a result of making fewer errors by using MTD compatible software rather than relying on manual calculations;
• developing a better understanding of how the business is performing during the year, enabling them to make better, timelier decisions;
• implementing more proactive tax planning strategies to minimise future tax liabilities;
• having an improved cash flow position due to a better handle on debtors and creditors and knowing how much tax will need to be paid and when.

Cloud Accounting

At Sam Rogoff & Co, we put cloud accounting and technology at the forefront of your business, whether you are looking to grow or simply create efficiency in your finance function. This enables us to go above and beyond for your business and offer more than just pure compliance.

We understand that as a business owner, you want the latest information at your fingertips. By using cloud accounting and associated apps, we can work collaboratively with you to provide an insight behind the numbers, which enable you to become more reactive to changes as and when they occur.

We work predominantly with Xero as a certified Gold Partner, and we are also experienced in using QuickBooks Online, Sage Online Accounting, FreeAgent and many more.

By moving to a cloud accounting package you will be able to:

• Log in on your mobile or tablet, Mac or PC to access your finances at any time – no need to send a backup file of your accounts by email.
• Link your software to your bank account, to enable you to have a daily snapshot of your business and automate your bookkeeping processes.

We won’t just set you up on an accounting software package subscription and leave it there – we can discuss your needs and tailor a package to suit your business, so you won’t have to worry about your finance function.

We partner with a number of software providers and applications, which integrate seamlessly with your accounting package and carry out anything from a cashflow forecast for the future based on up-to-date figures, to comprehensive inventory management. Perhaps you are looking for financing options to assist with short term cash flow or looking at a challenger bank to reduce exchange rate losses – we would be able assist you.

Whether you are a contractor looking to send out a quote on a job, need a shiny new invoice template designed, or are starting up a new business and want to put a new system into place, we can assess your requirements and put a system in place that works for you.

We look not just at the bottom line, but at the business as a whole to provide a multi-dimensional accounting and advisory service.

We can help you to spend less time unpicking your finances and devote more quality time doing what you want to do, whether it be running the business or spending time away from the office.