Making tax digital: 2023 update on deadlines and delays
Making Tax Digital (MTD) has been around for a while, but the government programme to reform how individuals and businesses calculate and submit their tax declarations has been plagued with delays, changes, and distractions.
The concept is simple; tax submissions need to be made via compatible software, reducing the volume of manual errors or mistakes, speeding up the process, and streamlining tax collections for HMRC.
However, the rollout of Making Tax Digital (MTD) to self-assessment income taxpayers has been delayed by two years and since reviewed, making it difficult to keep pace with an increasingly fragmented implementation. This has caused increasing numbers of companies and tax payers to approach chartered accountants for support and advice.
Which taxes are affected by MTD?
Over time, HMRC intends to collect all tax returns and payments digitally, phasing out manual paper forms and returns typed into the submission portal.
- MTD for VAT: all VAT-registered businesses should now be using compatible software to submit VAT returns.
- MTD for Self-Assessment: originally, MTD was expected to apply to self-assessment returns from April 2024 and those with an income over £10,000. The latest updates include a two-year delay, pushing back the plans until April 2026, and lifting the threshold to £50,000. Self-employed business owners earning over £30,000 are expected to be enrolled from April 2027.
- MTD for Partnerships: the initial implementation date for partnerships was set for 2025 but has been paused. Current government guidance simply states that ‘the dates will be set out later’.
- MTD for Corporation Tax: a pilot is expected to run for some time, with full implementation anticipated at some point between 2026 and 2030.
As things stand, only VAT returns need to be submitted according to the MTD requirements, introduced in April 2019 for businesses over the £85,000 threshold who are required to register.
Businesses that voluntarily choose to become VAT registered are also now enrolled, with the online VAT return portal closing from 1st November 2022. Companies that submit annual VAT returns can continue to use their existing submission processes until 15th May 2023.
Factors that have contributed to MTD delays
There is much speculation about the reasons behind the delays to MTD and whether it has been as successful for the VAT system as hoped. HMRC’s Chief Executive and Permanent Secretary, Jim Harra, has stated that it remains a ‘critical part’ of plans to digitise the UK tax system. Still, there have clearly been some teething problems.
Reported issues include a lack of confirmation messages verifying whether returns have been received, downtime, leaving last-minute submissions ticking over the deadline, and sign-up emails that never arrive.
Some businesses that submit monthly returns were affected by a system glitch, where returns were filed but not stored on HMRC records – although many of these bugs are either resolved or in progress.
However, HMRC has stated that the delay in MTD for income tax is due to external pressures on the economy, with rising interest rates, the cost-of-living crisis and inflation putting strain on the British business sector.
The tax office has advised that a slower, more gradual implementation should give more time to help businesses, accountants, and taxpayers adjust while avoiding any new requirements during economic uncertainty.
Ultimately, MTD is intended to make tax easier and less time-consuming, and there is no sign that the government expects to abandon the scheme altogether.
MTD for income tax pilot schemes
In the meantime, taxpayers who submit self-assessment tax returns can opt into a pilot scheme as part of an initiative to test the system – although only those with MTD-compatible accounting software can sign up.
The pilot is open to self-employed business owners and those who earn an income from property, or both, and anybody can apply if they wish, regardless of their income.
From 6th April 2026, anybody who has not voluntarily opted in will receive a letter from HMRC advising if they are obliged to meet MTD requirements from then on – this will be based on 2024/25 tax returns, due by 31st January 2026.
All qualifying income will be included in the calculations, and non-compliance will result in new penalties, expected to be similar to those already in place for VAT submissions. VAT-paying businesses receive a points-based penalty rather than an automatic fine but attract a financial penalty if they accumulate over a certain threshold of points.
How to prepare for MTD
While it may be two years or more before MTD applies to your income, tax declarations or business, many are opting to transition to cloud-based accounting, efficient, and MTD-compatible software now, rather than waiting until just before the applicable deadlines.
Most modern accountancy software providers have already added features to allow for one-click, digitised submissions, and professional accountancy practices have upgraded their systems to ensure compliance.
The government Finding Software for Making Tax Digital for VAT tool has advice about which software packages are compatible, with an approved system in place to verify which are suitable.
Otherwise, the steps to comply are relatively straightforward – if you use an agent such as an accountancy practice like south coast based chartered accountants James Todd & Co to submit your returns, they can work through these with you:
- Register – HMRC will not auto-enrol businesses or taxpayers, and you need to register your details, giving HMRC permission to transfer your existing tax accounts to the new MTD system. It can take up to 72 hours, and you should receive a confirmation email once completed.
- Implement appropriate software – your software will need the functionality to connect with MTD. It is wise to back up all accounting records and data before transitioning to a new system or seek professional help to ensure your records are transferred correctly.
- Connect with MTD – you need to input your taxpayer details into your software to allow it to communicate with your HMRC MTD account.
Note that you cannot yet connect with the MTD system if the relevant tax regime has not gone live unless you are participating in a pilot.
For most smaller businesses that do not submit VAT returns, MTD will not come into effect until their next accounting period that starts on or after 6th April 2026, but being aware of the changes, and preparing their accounting systems, could save valuable time and avoid delays, late submissions, or penalties.