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Making Tax Digital

What is Making Tax Digital and how will it affect my business?

HMRC are pushing ahead with their plans to digitalise the tax system. You will not be able to escape the consequences.

From April 2019, VAT registered businesses with a taxable turnover above £85,000 will have to have Making Tax Digital (MTD) functionally compatible software to make VAT submissions electronically to HMRC. Other businesses will follow with very limited exemptions available.

If you do not know if your software is MTD compliant then don’t wait until it’s too late, check now and update.

Making Tax Digital for VAT: an update on digital links

For VAT periods starting on or after 1 April 2020 (or 1 October 2020 for deferred businesses) the ‘digital links’ requirement for MTD for VAT comes into force.

What are digital links?

Digital links are the requirement for “any transfer or exchange of data between software programs, products or applications used as functional compatible software” to be electronic. In simple terms this means not re-keying numbers from one system into another as part of your VAT return preparation, with the “functional compatible software” being the software or set of software products that when taken together “form the digital records for the VAT registered entity”. It is key that functional compatible software meet the requirements specified by HMRC.

Read more here!

What does it mean from 1 April 2019 – MTD for VAT commences:

  • You have to keep digital records
  • VAT returns commencing on or after 1 April 2019 have to be sent electronically to HMRC
  • The government gateway website that many businesses currently use to submit their VAT returns will not be available for MTD for VAT returns
  • Limited exemptions available
  • Taxable turnover includes all Standard, Reduced and Zero rated sales in the previous 12 months. It excludes Exempt and Outside the Scope items

October 2019 – MTD for VAT expanded to include ‘deferred’ businesses:

  • Those entities will include trusts, ‘not for profit’ organisations that are not set up as a company, VAT divisions, VAT groups, those public sector entities required to provide additional information on their VAT return (Government departments, NHS Trusts), local authorities, public corporations, traders based overseas, those required to make payments on account and annual accounting scheme users

What does it mean from April 2020 – MTD for VAT expanded, MTD for income tax/corporation tax introduced:

  • MTD for VAT penalties become enforceable
  • ‘Digital links’ have to be established between systems (e.g. from sales system to accounting system to HMRC)
  • Businesses above £10,000 turnover expected to be brought into MTD for income tax/corporation tax
  • Quarterly submissions to HMRC of a ‘mini profit and loss’ expected to commence
  • VAT submissions deadline for submission likely to be shortened to just one month

HMRC plan to revolutionise the tax system with your digital tax account showing your liabilities in a single place.

This is potentially accompanied by ‘Voluntary Pay As You Go’ for income taxes which was discussed at the HMRC consultation stage.

The adequate submission of income and expenditure to HMRC becomes important as a result of these changes. It is likely that there will be a surge of businesses attempting to review their accounting systems. This is with regards to income and expenditure to HMRC. Furthermore, this may lead to an increased uptake of cloud accounting packages.

To discover the benefits cloud accounting packages have, visit our cloud accounting page. Alternatively, speak to one of our partners or a member of the Managed Services team. In conclusion, see how our team can help you move away from desktop accounting systems.

If you are still unsure about Making Tax Digital (MTD), then out Managed Services team have put together some FAQ’s to help.


We have been talking to our clients about HMRC’s plans to revolutionise the tax system with the Digital Tax Account and Making Tax Digital for Business (MTDfB). We believe these plans will have a huge impact on many. However, we can be on hand to assist you.  The biggest impact is if your systems are inadequate to keep records up to date and if you don’t keep records in a digital format. Therefore, now is the time to review those systems and see how they can be updated to your advantage as well as to meet the needs of MTD.

So give us a call.


Page correct as at 7 February 2019


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