Making Tax Digital Phase 2 Delayed

Making Tax Digital (MTD) has been a plan by HMRC for a while now but, as with many things, Covid-19 has had an impact on this and the launch of MTD Phase 2 has now been postponed until further notice.

According to HMRC, MTD is a key part of the government’s plans to ‘make it easier for individuals and businesses to get their tax right and keep on top of their affairs’.

HMRC’s ambition is to become ‘one of the most digitally advanced tax administrations in the world’. MTD is making fundamental changes to the way the tax system works – transforming tax administration so that it is ‘more effective; more efficient; and easier for taxpayers to get their tax right’.

‘Phase one’ of the MTD for VAT requirements required businesses to sign up to MTD and submit their VAT returns to HMRC directly from their software. ‘Phase two’ – which has now been delayed – will require businesses to digitally link their software from entry of each transaction through to submission of the VAT return.

This delay will be good news for many VAT registered businesses which are struggling during the Covid-19 pandemic and feel the need to focus on their business and deal with the current challenges they face, rather than tackle a new way of maintaining their accounts.

It is planned that MTD will eventually apply to all businesses required to file tax returns online, including sole traders.