Policy paper

Overview of Making Tax Digital

Updated 19 December 2022

Making Tax Digital is a key part of the government’s Tax Administration Strategy. It will help reduce the tax gap by requiring businesses and individuals to:

• keep digital records

• use software that works with Making Tax Digital

• submit updates every quarter, bringing the tax system closer to real-time

The benefits of Making Tax Digital

Making Tax Digital supports HMRC’s plans to digitalise the tax system. It will:

• make it easier for individuals and businesses to get their tax right

• mean customers can integrate tax management with a range of business processes through software

• contribute to wider productivity gains for businesses by encouraging digitalisation

It will help reduce the amount of tax lost to avoidable errors due to the:

• improved accuracy of digital records

• additional help built into many software products

• digital records being sent directly to HMRC

HMRC recently published evidence of Making Tax Digital reducing the tax gap.

Find out more about how businesses have benefitted first-hand from Making Tax Digital.

Making Tax Digital for VAT

If you have a VAT registered business, you are now required to keep digital records and file your tax returns using compatible software.

HMRC will sign up all remaining businesses to Making Tax Digital for VAT automatically unless they are exempt or have applied for exemption.

You should now find software that works with Making Tax Digital for VAT.

If you’re an agent, you should follow the Making Tax Digital for VAT step by step guide for agents.

Making Tax Digital for Income Tax

You need to follow the requirements for Making Tax Digital for Income Tax if you are self-employed or a landlord from:

• 6 April 2026 if you have an annual business or property income of more than £50,000

• April 2027 if you have an annual business or property income of more than £30,000

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 for Income Tax. If you are a self-employed business or landlord, check if you can voluntarily sign up now through your software provider.

If you’re signing up your own business, you should use the step-by-step guide for Making Tax Digital for Income Tax to get started.

If you’re an agent, you should follow the Making Tax Digital for Income Tax step by step guide for agents.

Legislation

Primary legislation relating both to VAT and Income Tax is contained in the Finance (No.2) Act 2017. This provided certainty about the broad framework of Making Tax Digital.

Secondary legislation for VAT came into force for businesses with a taxable turnover above the VAT threshold from April 2019. From April 2022, revised secondary legislation came into effect, mandating VAT registered businesses with taxable turnover below the threshold to meet the VAT requirements.

Find out more about the requirements for VAT and what digital information must be kept.

The secondary legislation for Making Tax Digital for Income Tax was laid in September 2021, providing further detail on the design of the system.

Evaluation and research into Making Tax Digital

The government has published an evaluation of the introduction of the Making Tax Digital for VAT programme.

We have published a number of research reports, commissioned by HMRC, to explore a wide range of subjects relating to Making Tax Digital.

2022 research reports

• Monitoring businesses’ awareness of Making Tax Digital (published on 9 June 2022)

• Income Tax Self Assessment: Readiness for Making Tax Digital (published on 26 May 2022)

• Evaluating additional tax revenue from Making Tax Digital for VAT (published on 10 March 2022)

• Qualitatively assessing the impact of Making Tax Digital (published on 3 February 2022)

2021 research reports

• Impact of Making Tax Digital for VAT (published on 20 July 2021)

• Exploring voluntary sign-up to Making Tax Digital for VAT (published on 23 March 2021)

• Exploring the costs and benefits of Making Tax Digital for VAT experienced by smaller businesses (published on 23 March 2021)

2020 research reports

• Making Tax Digital for VAT: Exploring the barriers and enablers to becoming compliant (published on 29 June 2020)

• Exploring views of business reporting errors to support Making Tax Digital upstream compliance (published on 19 March 2020)

• Exploring business Income Tax errors and how these can be addressed within software design (published on 19 March 2020)

• Monitoring business’ awareness of Making Tax Digital (published on 19 March 2020)

• Monitoring agents’ awareness of Making Tax Digital (published on 19 March 2020)

• Making Tax Digital: letter testing (published on 19 March 2020)

• Making Tax Digital: late submission penalty models (published on 19 March 2020)

• Exploring complex businesses’ tax processes and readiness for Making Tax Digital (published on 19 March 2020)

• Evaluating Making Tax Digital’s impact on record keeping behaviour and scope for error among small businesses (published on 19 March 2020)

Get support

You can get help and support for Making Tax Digital. You will be provided with:

• webinars

• YouTube guidance videos, including top tips from agents

• the ability to set up email updates from HMRC, covering a wide range of topics