HMRC's Making Tax Digital plans involve getting small businesses and the self-employed to complete digital tax records and returns, with the eventual aim of going completely paperless.

HMRC says that MTD is how they’re delivering on making it "easier for individuals and businesses to get their tax right and keep on top of their affairs.”

HMRC already introduced the Personal Tax Account in 2015, which is a digital tax account that aims to make it easier for people to manage their tax affairs.

Making Tax Digital for VAT started from 1 April 2019, affecting VAT-registered businesses with a taxable turnover above the VAT threshold of £85,000.

Next all VAT-registered businesses will need to comply with Making Tax Digital for VAT from April 2022.

And from April 2026, Self Assessment taxpayers will need to comply with Making Tax Digital for income tax. This was originally scheduled for April 2023, however the government made the decision to push this back by a year to allow businesses more time to prepare after the challenges of the pandemic.

Making Tax Digital deadlines:

•     April 2019: VAT-registered businesses with a taxable turnover above the VAT threshold of £85,000 need to keep digital records and submit digital VAT returns using compatible software. Some 'more complex' businesses were given a six-month deferral (read more below)

•    October 2019: more complex businesses who were deferred need to comply with Making Tax Digital

• April 2022: MTD will be compulsory for businesses with a turnover below the £85,000 VAT threshold

•   April 2026: MTD (Income Tax) will apply to taxpayers who file income tax Self Assessments for business or property income of more than £50,000 a year

• April 2027: MTD (Income Tax) will apply to taxpayers who file income tax Self Assessments for business or property income of more than £30,000 a year

Making Tax Digital for sole traders

Making Tax Digital for income tax will launch properly in April 2026 for self-employed people and landlords who make over £50,000 annually. This is later than originally planned – HMRC announced the delay, saying they want to give businesses more time to get ready for the changes as we emerge from Covid-19.

HMRC says it will lead to a more real-time system, which lets you see how much income tax you owe as you go.

You'll need to use compatible software to keep records and send an income and expenses summary to HMRC every three months. You'll be able to see estimates of how much tax you'll owe.

At the end of the accounting year, you'll send a final report and your tax for the year will be calculated. This is the point at which you'll claim any allowances and reliefs.

Making Tax Digital for corporation tax

There's not much information about when (and if) Making Tax Digital will be introduced for Corporation Tax. HMRC is waiting to see how the full VAT rollout goes first before making any decisions.