MTD’s Role in Tax System Reform
Making Tax Digital (MTD) is transforming the way UK businesses manage their taxes by shifting them to a digital platform. This transition ensures businesses benefit from modern, efficient tax management through a range of MTD-compatible software solutions.
Since April 2022, all VAT-registered businesses must maintain digital records and file returns using MTD software. Businesses report faster VAT return preparation and greater confidence in tax accuracy. An HMRC evaluation found that:
-
67% of businesses believe MTD software reduces errors in record-keeping.
-
80% found MTD software easy to use.
Beyond tax, MTD is also encouraging broader business digitalisation, improving productivity.
Expanding MTD to More Small Businesses
The government is extending MTD for Income Tax to more small businesses, boosting productivity and efficiency.
-
From April 2026, MTD applies to sole traders and landlords earning over £50,000.
-
From April 2027, the threshold lowers to £30,000.
-
Now, MTD will include businesses earning over £20,000 from April 2028, allowing 900,000 more businesses time to adapt.
The government is also exploring ways to bring the benefits of digitalisation to 4 million smaller sole traders and landlords below the £20,000 threshold.
Enhancing MTD Design and Implementation
To improve MTD’s rollout, the government is introducing practical changes:
Exemptions and Deferrals
Certain taxpayer groups will be exempt from MTD due to disproportionate barriers, including:
-
Customers with a Power of Attorney.
-
Foreign entertainers & sportspeople with no other UK income.
-
Taxpayers for whom HMRC cannot provide a digital service.
Additionally, some groups will not be required to join MTD during this Parliament due to complexity:
-
Ministers of religion.
-
Lloyd’s Underwriters.
-
Recipients of the Married Couples’ and Blind Persons’ Allowances.
-
Individuals filing under SA109 (deferred until April 2027).
Legislation will formalize these exemptions, with guidance provided once finalised.
Improving End-of-Year Filing for MTD Users
To streamline Self Assessment reporting:
-
MTD users will be required to file their entire tax return through MTD software rather than splitting submissions between software and HMRC’s online service.
-
This ensures consistency, simplifies processes, and enhances productivity.
Further MTD and Penalty Reform Improvements
Additional refinements include:
-
Allowing businesses with a March 31 accounting date to start MTD obligations from April 1 to avoid manual adjustments.
-
Granting HMRC powers to cancel/reset late submission penalties, ensuring fairer treatment, especially in insolvency cases.
The government will finalise legislation ahead of April 2026 to implement these changes, working closely with stakeholders to ensure a smooth transition.
Info obtained here
