Making Tax Digital (MTD) VAT is being extended to all businesses voluntarily registered for VAT for their first VAT return period starting on or after 1 April 2022.

The soft landing for digital links within MTD functional compatible software ended in April 2021. This means that where digital records are held in a suite of software and spreadsheets, any data transfer between these products must be digital.

Alongside the new record-keeping and MTD filing requirements for VAT, we also have new late filing and late payment penalty rules waiting to replace the old default surcharge rules. The new penalty rules were legislated by Finance Act 2021. They have been designed so they can be used for all taxes with quarterly, or other periodic, filing requirements, for example income tax and corporation tax.

The new penalties work around filing obligation dates and impose penalty points where a business misses a filing obligation date. Points lead to fines, but good behaviour means points drop away over time.

Income tax & Self Assessment (ITSA) 

Unlike MTD VAT, the start date for MTD ITSA is in secondary legislation. Following a consultation published late last year, the start date is almost certainly going to be 6 April 2023 and will apply to unincorporated businesses and landlords with total business or property income above £10,000 per year.

As with MTD VAT, the more detailed requirements will be set out in a Notice and will most likely be based on the draft which was published in 2017. Quarterly reports are likely to require quarterly totals under headings following the self-employed pages of the ITSA tax return.

The first accounting periods to be affected by MTD ITSA will be those beginning on or after 6 April 2023. Quarterly reports will be needed for each business a taxpayer has, which includes each property business, and also a rent-a-room business.