HMRC’s plan for Making Tax Digital (MTD) involves a phased approach to implementation:

 

• Limited Scope Expansion: HMRC has stated that it will not extend the scope of MTD for businesses beyond VAT-registered entities until the system has been proven effective. This cautious approach ensures thorough testing and allows digital record-keeping practices to become more widespread.
• Timeline for Expansion: According to HMRC’s announcement in July 2020, nearly all businesses will be mandated to file in line with MTD by 2024. This gradual rollout provides businesses with time to adapt to the new requirements and ensures a smoother transition.

When the scope of MTD widens, businesses will face several new requirements:

 

• Quarterly Updates and Tax Estimates: Business owners will need to provide quarterly updates to HMRC using their digital records, along with an estimate of their tax liability for the year. This shift from annual reporting to quarterly reporting offers greater certainty about tax liabilities throughout the year but may require adjustment for businesses not accustomed to regular reporting.
• Digital Record Keeping: MTD mandates that businesses maintain their records digitally using third-party software. While some businesses already do this, others will need to transition to digital record-keeping practices. Starting this process early and becoming comfortable with digital record-keeping before it becomes mandatory is advisable.
• More Frequent Tax Payments: Although not yet confirmed, MTD could potentially allow businesses to pay tax more frequently, possibly on a real-time basis and even voluntarily. This departure from the current practice of annual tax payments would align with the real-time data processing approach of MTD and could provide businesses with greater control over their tax obligations.

Overall, HMRC’s plan for MTD aims to modernise tax reporting and improve compliance while allowing businesses sufficient time to adapt to the new requirements.