Extension of mtd | Severn Accounting

Making Tax Digital (MTD) has been a fixture of the UK tax landscape since 2019, fundamentally changing how self-employed individuals and partnerships report their income to HMRC. However, the journey towards a fully digital tax system hasn’t been entirely straightforward. Recent announcements regarding the extension of MTD for Income Tax represent a significant shift in government plans, and it’s crucial that business owners understand what this means for them.

What is Making Tax Digital (MTD)?

For those new to the concept, MTD requires eligible taxpayers to keep digital records and use compatible software to prepare their tax submissions. The intention was admirable: streamline record-keeping, reduce errors, and make tax compliance more efficient. Since April 2019, self-employed individuals and partnership members with turnover above the £85,000 threshold have been required to comply with MTD for Income Tax. The system has worked reasonably well for many, though the transition period has highlighted both benefits and challenges.

The Extension Timeline: What’s Changed?

The government has announced a significant extension to the MTD rollout for Income Tax, pushing back the deadline for mandatory adoption. Originally, all eligible taxpayers were expected to be on the system by now, but the phased approach has been revised. The extension reflects practical concerns raised by accountants, small business owners, and software providers about the readiness of certain sectors and system infrastructure.

Crucially, this extension applies to the broader self-employed population and partnerships below the £85,000 threshold. The government recognised that many smaller businesses—those earning between £10,000 and £85,000 annually—needed additional time to prepare, upgrade their systems, and train staff. This postponement buys valuable breathing room for many business owners who’ve felt pressured to transition quickly.

For those already using MTD, the extension doesn’t change your current obligations. You’ll continue to file quarterly reports and submit your annual Self Assessment return through compatible software. However, those not yet required to comply should use this extended timeline to prepare, rather than delay unnecessarily.

Practical Implications for Your Business

The extension period offers a golden opportunity to get your house in order. If you’re still using spreadsheets or paper records, now is the time to transition to appropriate digital systems. The longer you wait, the more backlog you’ll have to input when compliance becomes mandatory.

When selecting software, ensure it’s HMRC-approved and compatible with your existing systems—whether that’s your payroll software, bookkeeping platform, or invoicing tool. Integration is key to minimising manual work. Many modern accounting packages now offer this seamlessly, often at competitive prices, particularly for smaller businesses.

One important consideration: records must be kept digitally from the point they’re created. You cannot simply scan old paper invoices and call it MTD compliance. This means establishing new processes now, rather than scrambling to digitise everything at the last minute. Good record-keeping also supports your position with HMRC if you’re ever subject to enquiry.

Are You Affected?

Not all taxpayers fall within MTD’s scope. Currently, it applies to self-employed individuals and partnerships with turnover above £85,000. However, businesses with lower turnover can voluntarily comply, which we often recommend—the discipline of digital record-keeping benefits everyone. Additionally, there are specific exclusions for certain sectors and circumstances, so if you’re unsure whether MTD applies to you, it’s worth clarifying now.

Limited companies are currently exempt from MTD for Income Tax, though they remain subject to quarterly reporting requirements for VAT if registered above the £85,000 threshold. This position may change in future years, so staying informed is essential.

Looking Ahead

The extension of MTD reflects government pragmatism—a recognition that change of this scale takes time. Rather than viewing this as a reprieve, consider it an investment period in your business infrastructure. The businesses best positioned will be those using this time to embed digital practices, train their teams, and establish processes that work efficiently.

Software providers, HMRC, and the accountancy profession continue to refine the system. Help is available through HMRC’s guidance, software providers’ support teams, and your accountant. Don’t hesitate to ask questions or seek clarity.

For tailored advice, contact Severn Accounting — we’re here to help.