Making Tax Digital in the UK: What It Means for Your Business and How to Stay Ahead
Making Tax Digital (MTD) is HMRC’s ambitious initiative to modernise the UK tax system. It’s been rolling out in stages since 2019, with the ultimate goal of reducing tax errors and simplifying compliance through digital reporting. But what does this mean for small to medium-sized businesses, and how can you stay compliant without the stress?
Here’s everything you need to know about MTD’s implementation – and how to make it work for your business.
What Is Making Tax Digital?
Making Tax Digital is a government-led programme requiring businesses and individuals to keep digital records and use compatible software to submit tax returns to HMRC. It aims to reduce human error, improve efficiency, and promote real-time reporting.
Timeline of Implementation
-
April 2019: MTD for VAT began for VAT-registered businesses with turnover above the £85,000 threshold.
-
April 2022: MTD for VAT extended to all VAT-registered businesses, regardless of turnover.
-
April 2026 (delayed from 2024): MTD for Income Tax Self Assessment (ITSA) to apply to sole traders and landlords with income over £50,000.
-
April 2027: MTD for ITSA to apply to those with income between £30,000 and £50,000.
-
Date TBC: MTD for Corporation Tax is still under consultation, with no confirmed start date yet.
What You Need To Do
-
Use MTD-Compatible Software
You must keep digital business records and submit returns using software approved by HMRC, such as Xero, QuickBooks, Sage, or FreeAgent. -
Maintain Digital Records
Every transaction must be recorded digitally – spreadsheets can be used if connected to bridging software. -
Submit Quarterly Updates
For income tax, MTD will require quarterly updates to HMRC instead of a single annual return. -
Plan Ahead for Future Phases
Even if you’re not affected now, it’s worth preparing for MTD for ITSA or Corporation Tax early to avoid future disruption.
Benefits of MTD (If Implemented Properly)
✅ Better Financial Visibility
Quarterly reporting helps you stay on top of your income and expenses year-round.
✅ Fewer Errors
Automated software reduces the risk of manual miscalculations or missed entries.
✅ Time Savings
No more digging for receipts at year-end – your books stay up to date automatically.
✅ HMRC Compliance
Avoid penalties by meeting your obligations with less stress.
The Risks of Ignoring MTD
❌ Penalties for non-compliance are expected to increase as the system matures.
❌ Falling behind with digitalisation could leave your business at a competitive disadvantage.
❌ Manual processes may become unsustainable as reporting becomes more frequent and complex.
Our Advice: Don’t Wait
Even if your business isn’t yet legally required to use MTD, switching early gives you a head start. It allows for smoother onboarding, better forecasting, and more control over your tax obligations.
How We Help
As a proactive accountancy firm, we help our clients:
-
Choose and implement the right MTD-compatible software
-
Train staff on digital recordkeeping
-
Automate quarterly reporting
-
Avoid common MTD pitfalls
-
Stay ahead of future HMRC changes
Conclusion:
Making Tax Digital is here to stay – and it’s evolving. Whether you’re already affected or preparing for future phases, embracing MTD now can lead to better business decisions, fewer surprises, and less tax-related stress. Don’t wait until deadlines creep up.
Need help with MTD? Get in touch with our team today – we’ll make sure you’re compliant, confident, and in control.
