Understanding Making Tax Digital (MTD) Requirements
Keeping compliant with HMRC’s Making Tax Digital initiative is crucial for all UK businesses, regardless of size or current tax management methods. This comprehensive guide explains MTD’s goals, current mandatory requirements, and upcoming changes for 2024-2026.
What is Making Tax Digital?
Making Tax Digital (MTD) is HMRC’s initiative to modernise the UK tax system. It requires businesses and individuals to maintain digital records and submit tax returns using MTD-compatible software.
Key Goals of MTD
- Improved Accuracy: Transition from paper-based to digital records using accounting software
- Enhanced Efficiency: Streamline tax submissions through digital filing
- Better Compliance: Implement quarterly returns for improved monitoring and fraud prevention
Current Mandatory MTD Requirements
MTD for VAT
- Mandatory since April 2019
- Applies to all VAT-registered businesses
- Requires digital record-keeping
- Quarterly VAT returns using MTD-compatible software
Upcoming MTD Changes (2024-2026)
MTD for Income Tax Self Assessment (ITSA)
- Launch date: April 2026
- Applies to:
- Sole traders
- Landlords
- Annual income above £30,000
- Requirements:
- Digital record-keeping
- Quarterly updates
MTD for Corporation Tax
- Expected implementation: Post-April 2026
- Currently in consultation phase
- Final timeline pending confirmation
Need Help with MTD Compliance?
- Our expert tax team can guide you through:
- MTD software selection
- Digital recordkeeping setup
- Compliance requirements
- Registration process
Frequently Asked Questions
Q: Do I need to register for MTD if I’m already VAT registered?
A: Yes, all VAT-registered businesses must use MTD-compatible software for VAT returns and digital record-keeping.
Q: What software can I use for MTD?
A: You must use HMRC-approved MTD-compatible software. Popular options include QuickBooks, Xero, and Sage. Check HMRC’s website for a complete list of approved software.
Q: When do I need to start preparing for MTD for ITSA?
A: If your annual income exceeds £30,000, start preparing now for the April 2026 deadline by choosing compatible software and implementing digital record-keeping.
Q: Can I still use spreadsheets for my records under MTD?
A: You can use spreadsheets, but they must be MTD-compatible and integrated with bridging software that can connect to HMRC’s systems.
Q: What happens if I don’t comply with MTD requirements?
A: Non-compliance may result in penalties. HMRC has a points-based penalty system for late submissions and payments.
Q: How often do I need to submit returns under MTD?
A: VAT returns remain quarterly. Under MTD for ITSA, you’ll need to submit quarterly updates plus an annual final declaration.