Making Tax Digital

Seems like it’s gone all a bit quiet on the MTD front! Here’s a reminder of what Making Tax Digital is and what you need to do in order to comply. 

Making Tax Digital (MTD) is a government initiative designed to make it easier for businesses and individuals to get their tax right. It involves moving away from traditional paper-based methods and embracing digital record-keeping and online submissions. While the initial phases focused on VAT, MTD is expanding to encompass other taxes, making it crucial for all UK businesses to understand and prepare.

What is Making Tax Digital?

At its core, MTD mandates that businesses keep digital records of their income and expenses and submit updates to HMRC using compatible software. This shift aims to reduce errors, improve efficiency, and ultimately, make the tax system more streamlined.

Which Taxes are Affected?

VAT Registered Businesses

If you have a VAT registered business, you are now required to keep digital records and file your tax returns using compatible software.

HMRC will sign up all remaining businesses to Making Tax Digital for VAT automatically unless they are exempt or have applied for exemption.

Income Tax 

If you’re self-employed or a landlord, currently, you’ll need to follow the requirements for Making Tax Digital for Income Tax from:

• 6 April 2026 if you have an annual business or property income of more than £50,000
• April 2027 if you have an annual business or property income of more than £30,000

Some businesses and agents are already keeping digital records and providing updates to HMRC as part of a live pilot to test and develop the Making Tax Digital for Income Tax. If you are a self-employed business or landlord, check if you can voluntarily sign up now through your software provider.

Corporation Tax

While not yet mandated for all, MTD for Corporation Tax is on the horizon. Businesses should prepare for the eventual shift to digital record-keeping and submissions.

Key Requirements of MTD

Digital Record-keeping – You must maintain digital records of all income and expenses. This means using accounting software or spreadsheets that meet HMRC’s requirements.

MTD-Compatible Software – You need to use software that is compatible with HMRC’s systems to submit your tax information. A wide range of software options are available, from cloud-based solutions to desktop applications.

Regular Submissions – Making Tax Digital requires more frequent submissions than the traditional annual tax return. For VAT, submissions are quarterly. MTD for Income Tax will also involve quarterly updates.

Benefits of MTD

Reduced Errors – Digital record-keeping and automated submissions minimise the risk of human error.

Improved Accuracy – Real-time data entry and calculations enhance the accuracy of tax information.

Increased Efficiency – MTD streamlines tax processes, saving businesses time and resources.

Better Business Insights – Digital records provide valuable insights into business performance, enabling better decision-making.

Steps to Prepare for MTD

Assess Your Current Systems –  Evaluate your current accounting and record-keeping processes. Identify any gaps or areas that need improvement.

Choose MTD-Compatible Software – Research and select software that meets your business needs and is compatible with HMRC’s MTD requirements. Consider factors like cost, features, and ease of use.

Migrate Your Data – Transfer your existing financial data to your new MTD-compatible software. Ensure the data is accurate and complete.

Stay Updated – Keep abreast of any changes or updates to MTD regulations and timelines. HMRC provides guidance and resources on their website.

Seek Professional Advice – If you are unsure about any aspect of MTD, consult with an accountant or tax advisor. They can provide tailored guidance and support.

Making Tax Digital is a significant change to the UK tax system. It’s crucial to prepare early to avoid any compliance issues. By taking the necessary steps now, you can ensure you and your business is ready for Making Tax Digital and can reap the benefits of a more efficient and accurate tax system.

If you would like help to get your business ready for Making Tax Digital (MTD) contact us today. Although we’re based in Cornwall, we can help businesses all over the UK.