Making Tax Digital (MTD) is a key initiative by HM Revenue and Customs (HMRC) to modernise the UK tax system. For e-commerce businesses, understanding and properly registering for MTD is crucial for maintaining compliance and streamlining tax processes. This guide will walk you through the essentials of MTD, ensuring you’re well-prepared for this digital transition, which has yet to be implemented across all taxes.
What is Making Tax Digital?
Making Tax Digital is HMRC’s ambitious programme to digitise the UK tax system. It aims to make tax administration more effective, efficient, and easier for taxpayers through the implementation of a fully digital tax system. The primary goals of MTD include:
- Reducing errors in tax submissions
- Providing a clearer view of tax data in real-time
- Making it easier for businesses to manage their tax affairs
For some e-commerce businesses, MTD represented a significant shift in how financial records were kept and how tax returns were submitted to HMRC.
Do I Need to Register For MTD?
The short answer is: it depends on your business circumstances. However, for most e-commerce businesses, registration for MTD is mandatory and automatic if you meet certain criteria. Let’s delve into who needs to register.
Who Needs to Register for MTD?
Currently, MTD primarily affects businesses for VAT purposes. You must register for MTD if your business:
- Is VAT-registered
- Has a taxable turnover above the VAT threshold (currently £90,000)
It’s worth noting that even if your turnover falls below the threshold after registering, you must continue to use MTD unless you deregister from VAT.
For Income Tax Self Assessment (ITSA), MTD will be mandatory for self-employed businesses and landlords with annual business or property income above £50,000 starting from April 2026.
What is The Deadline For Making Tax Digital?
The deadlines for MTD registration vary depending on your business type and turnover:
- For VAT-registered businesses with a taxable turnover above £90,000, MTD has been mandatory since April 2019.
- All VAT-registered businesses, regardless of turnover, have been required to use MTD since April 2022.
- For Income Tax Self Assessment, the deadline is April 2026 for businesses and landlords with income above £50,000 per year.
New VAT registrations are now automatically enrolled into MTD.
What You Need To Comply With MTD
It’s crucial to choose the right MTD-compatible software for your e-commerce business. This software should be able to keep digital records and submit VAT returns directly to HMRC.
We recommend Xero for e-commerce businesses to maintain MTD compliant VAT records. Xero offers robust features tailored for online sellers, including inventory management, multi-currency support, and seamless integration with popular e-commerce platforms. Its user-friendly interface and automatic updates ensure you stay compliant with the latest MTD requirements.
What to Do After Registering for MTD
Once you’ve successfully registered for MTD, there are several key steps to ensure you’re fully compliant:
- Set up your MTD-compatible software: Ensure your chosen software is properly configured to keep digital records and submit VAT returns.
- Keep digital records: You must keep digital records of all your business transactions. This includes sales, purchases, and the VAT charged or paid.
- Submit VAT returns through MTD: All future VAT returns must be submitted using your MTD-compatible software.
- Maintain compliance: Regularly review your processes to ensure you’re meeting all MTD requirements.
- Stay informed: Keep up to date with any changes or updates to MTD regulations that may affect your business.
How Can I be Exempt From Making Tax Digital?
Whilst MTD is mandatory for most businesses, HMRC recognises that it may not be feasible for everyone. You may be exempt from MTD if:
- Your business is run entirely by practising members of a religious society whose beliefs prevent them from using electronic communications or keeping electronic records.
- It’s not reasonably practicable for you to use digital tools to keep your business records or submit your returns due to age, disability, remoteness of location, or any other reason. For an e-commerce business, this exemption is highly unlikely.
- You’re subject to an insolvency procedure.
To apply for an exemption, you need to contact HMRC directly. They will consider each case individually, so it’s crucial to explain your situation clearly and provide any necessary evidence.
Final Thoughts
Registering for Making Tax Digital is a significant step for e-commerce businesses towards modernising their tax processes. While it may seem daunting at first, the long-term benefits of increased accuracy, efficiency, and real-time tax information make it a valuable transition.
Key points to remember:
- Choose MTD-compatible software that suits your business needs.
- Keep digital records and submit VAT returns through your chosen software.
- Stay informed about MTD updates and maintain compliance.
By embracing MTD, you’re not just meeting a legal requirement – you’re setting your e-commerce business up for smoother, more efficient financial management in the digital age.
Remember, navigating the complexities of MTD can be challenging, especially while managing the day-to-day operations of your e-commerce business. If you’re feeling overwhelmed or unsure about any aspect of MTD registration or compliance, don’t hesitate to seek professional help.
Book a meeting with us today to discuss how we can support your e-commerce business through the MTD transition and beyond. Our team of chartered accountants specialises in e-commerce and can provide tailored advice to ensure your business not only complies with MTD but thrives in this new digital tax landscape.