Making Tax Digital – Are you ready?

Introduction to Making Tax Digital

Making Tax Digital is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs.

HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world. Making Tax Digital is making fundamental changes to the way the tax system works – transforming tax administration so that it is:

  • more effective
  • more efficient
  • easier for taxpayers to get their tax right

Making Tax Digital for VAT

VAT-registered businesses with a taxable turnover above the VAT threshold are required to use the Making Tax Digital service to keep records digitally and use software to submit their VAT Returns from 1 April 2019.

The exception to this is a small minority of VAT-registered businesses with more complex requirements. As part of planning for the VAT pilot, HMRC continue to engage with stakeholders and listen to their concerns about business readiness for Making Tax Digital. HMRC have made the decision to delay the transition for these customers until 1 October 2019 to ensure there is sufficient time to test the service with them in the pilot before they are expected to join – see the timeline below.

Making Tax Digital for VAT timeline



April 2019

 Making Tax Digital mandated for all customers (except those that have been deferred).

October  2019      

Making Tax Digital mandated for customers that have been deferred. The 6-month deferral applies to customers   who fall into one of the following categories: 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.

Income Tax

Some businesses and agents are already keeping digital records and providing updates to HMRC as part of a live pilot to test and develop the Making Tax Digital service for Income Tax. If you are a self-employed business or landlord you can voluntarily use software to keep business records digitally and send Income Tax updates to HMRC instead of filing a Self-Assessment tax return.


Helping businesses, self-employed people and landlords get it right first time

The majority of customers want to get their tax right but the latest tax gap figures show that too many find this hard, with avoidable mistakes costing the Exchequer over £9 billion a year. The improved accuracy that digital records provide, along with the help built into many software products and the fact that information is sent directly to HMRC from the digital records, avoiding transposition errors, will reduce the amount of tax lost to these avoidable errors.

HMRC have consulted with stakeholders throughout the development of Making Tax Digital, both formally and informally.

Having listened to concerns about the pace of change, particularly for small businesses, the government announced in July 2017 that the pace of transition would be slowed and that Making Tax Digital will not be mandatory for taxes other than VAT until at least April 2020.

The primary legislation for Making Tax Digital relating to VAT and Income Tax is contained in the Finance (No.2) Act 2017, providing certainty about the broad framework in which Making Tax Digital will operate, with secondary legislation for VAT laid in February 2018, coming into force from April 2019.

In October 2018 HMRC opened a VAT pilot to half a million businesses and published a VAT Notice which explains the rules for Making Tax Digital for VAT and the digital information that must be kept.

HMRC have also published a communication pack which supports the partnership working arrangements with stakeholders, who can use the contents to inform their own communications activity and key messages for clients, customers or members.

Further guidance can be found via the following links:
HMRC’s overview of Making Tax Digital (click here)
HMRC’s step by step guide for businesses (click here)
HMRC’s help and support (click here)
DansonOsborne Accountants (contact)