Making Tax Digital
What is MTD?
MTD is a government initiative aimed at modernizing the tax system by moving businesses and individuals to a fully digital set-up, making the process of submitting tax returns more efficient, accurate, and transparent.
MTD mandates that quarterly submissions are made to HMRC, which is a change from the previous annual taxation/reporting system. The quarterly reports are (at the moment), a data capturing exercise. Non-VAT tax will still be paid annually through an ‘ITSA’ (Income Tax Self Assessment) return.
MTD has been slowly introduced since 2022:
- VAT – reporting and tax paid quarterly – mandated since 2022
- Self employed individual and landlord rental income – reporting quarterly and tax paid annually through a comprehensive end of year tax return (ITSA) – mandated from April 2026
- Incorporated Businesses – mandated after April 2026 – details to be confirmed
Key Benefits:
- Reduced Errors: digital records and automated submissions reduce the likelihood of errors in tax reporting.
- Real-Time Data: the system allows for up-to-date, real-time financial data, making it easier for businesses to manage their tax affairs and avoid penalties.
- Efficiency: automation simplifies processes for both taxpayers and HMRC.
Who Does This Apply To and When?
Reporting Thresholds and Deadlines
For VAT: you must register if your taxable turnover is over £90,000 per annum.
For self-employed/sole trader and private landlords: reporting will be phased based on gross turnover (not profit) as follows:
- £50,000 or over: April 6th 2026
- £30,000 or over: April 6th 2027
- £20,000 or over: April 6th 2028
If your 2024/25 gross turnover is £50,000 or over, you will need to register to report for MTD in time for 6th April 2026.
For incorporated businesses and partnerships: date is to be confirmed, but not before 2026.
What Do I Do Next?
1. Set up an HMRC Online Account:
HMRC Online Account/Government Gateway ID: to register for a particular type of reporting, you need to have an HMRC online account. If you don’t have one, this needs to be set up, giving you your Government Gateway ID which you should keep safe and use to log into your account in the future. This process can take a few weeks, so please don’t leave it to the last minute!
If you are a self-employed business/sole-trader (not registered for VAT and unincorporated) and/or also receive rental income through property investments (bought in your own name and not through a limited company), you can use the same online personal tax account for both.
If you are an unincorporated partnership, you will need to set up the following accounts with HMRC: a business tax account for the partnership and personal tax accounts for each partner.
If you are an incorporated business, partnership, or any VAT registered business (including self-employed/sole trader), you will need to set up a business tax account with HMRC.
You, as a client, will have a separate HMRC account to us, your agent. You will need to authorise us through your account to act on your behalf.
2. Register for MTD Reporting
You then use your new or existing account platform to register online for the relevant reporting (MTD/SATR/CT).
3. Get Appropriate Software:
Record Keeping: businesses are required to keep digital records (specialist software or Excel spreadsheets) of their income and expenses rather than relying on paper-based systems. As a new client we would be happy to help you find suitable software.
To make Submissions to HMRC: if you choose to use Excel spreadsheets or non MTD compatible software for your record keeping, you will need bridging software to make your reporting submission to HMRC. There are plenty of options available on the market. If you are already using MTD compatible software, you will be able to make submissions to HMRC directly through this.