HM Treasury has confirmed the extension of Making Tax Digital (MTD) to cover businesses with a turnover below the VAT threshold and for certain individuals who file Income Tax Self-Assessment tax returns. This announcement provides much-needed clarity of the way forward for this scheme.

MTD started in April 2019 (for VAT purposes only) when businesses with a turnover above the VAT threshold of £85,000 became mandated to keep their records digitally and provide their VAT return information to HMRC using MTD compatible software. Since the launch more than 1.4 million businesses have joined the programme.

The first part of the further roll-out of MTD will start April 2022, when MTD will be extended to all VAT registered businesses with turnover below the VAT threshold of £85,000. This will be followed one year later (April 2023) when MTD will be extended to taxpayers who file Income Tax Self-Assessment tax returns for business or property income over £10,000 annually.

HMRC has said that the long lead-in time will allow businesses, landlords and agents time to plan. It also gives software providers enough notice to bring a range of new products to market, including free software for businesses with the simplest tax affairs.

Financial secretary to the Treasury Jesse Norman said:

'We are setting out our next steps on Making Tax Digital today, as we bring the UK’s tax system into the 21st century. Making Tax Digital will make it easier for businesses to keep on top of their tax affairs. But it also has huge potential to improve the productivity of our economy, and its resilience in times of crisis.'

The government has also confirmed that it remains committed to extending MTD to other taxes. The government will also consult later this year on the detail of extending MTD to incorporated businesses with Corporate Tax obligations.