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Laying out a roadmap for MTD deadlines

Stuart Miller

Stuart Miller

Feb 28, 2022

Deadlines have a habit of creeping up on you. Even something as well-publicised and long-gestating as Making Tax Digital (MTD) can spring a nasty surprise on affected businesses and their advisors, who have so much on their plates they may miss the government legislation sloping into view. 

Part of this is the sheer number of deadlines to remember for MTD, impacting different types of businesses at different times. With this in mind, we’ve outlined the key dates, helping you stay on top of what to expect and when as you look ahead to MTD compliance. 

When did MTD start?

Way back in April 2019, businesses with a VAT taxable turnover above £85,000 were obliged to start following MTD for VAT rules. Under MTD for VAT there is also a requirement to keep digital records and maintain digital links. This came to an end in April 2021, following a brief soft landing period where users could continue to copy and paste their data.

Now, the MTD phase 2 deadline is fast approaching. From April 2022, all VAT registered businesses must comply with MTD, unless they have a legal exemption

When do I need to register for MTD for VAT?

The good news is that you don’t have to change the dates that you usually file and pay your taxes, as the deadlines for MTD for VAT are the same as standard VAT returns. However, businesses will need to file their first MTD return for the VAT quarter starting on or after 1 April 2022 using compatible MTD for VAT software. 

It’s important to remember, however, that businesses are unable to sign up to MTD for VAT until after they have filed their last standard VAT return.

If you pay by direct debit, you should not sign up for MTD for VAT until five working days after the deadline of your last non-MTD return, or at least seven days before your return is due. Meanwhile, your first MTD return cannot be filed earlier than seven working days before its deadline.

If you pay using other methods, you won’t be able to sign up until 24 hours after your last non-MTD return has been submitted. As for filing your first MTD return, you’ll have to wait until 72 hours after the sign up process. Please also ensure that you sign up at least three days before your return is due.

What is the deadline for MTD for Income Tax (ITSA)?

Regardless of whether your business is registered for VAT or not, if you are a sole trader or landlord with an annual turnover above £10,000, you must sign up to MTD for Income Tax (ITSA) from April 2024. 

Meanwhile, general partnerships with income above £10,000 will have to comply from April 2025. 

When does the new MTD penalty points system come into effect?

While the move to MTD offers plenty of carrot – a push to digital transformation, a smoother tax process – the introduction of the stick was also an inevitability. 

Thankfully, HMRC’s point-based system is designed so that penalties are only given to those who regularly make mistakes and miss deadlines. Points will be calculated based on how regularly you submit.

This system will be introduced for MTD for VAT from January 2023, and come into effect with MTD for ITSA from April 2024. Here’s all the information you need on MTD penalties.

While these deadlines are a great starting point for what to watch out for with regards to MTD, Xero has a host of useful resources available for accountants and small businesses looking to embrace a bright new digital future.

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