What is MTD?
Making Tax Digital (MTD) is a government initiative designed to modernise the UK tax system. Instead of paper records and manual submissions, businesses must keep digital records and use HMRC-approved software to file VAT, income tax, and corporation tax returns. The aim is to make tax administration more accurate, efficient, and easier for businesses.
If you are unsure what you need to do to make sure you or your business is complient, get in touch with King and Talor today.
Who Needs to Comply With MTD?
At present, all VAT-registered businesses must use MTD-compatible software to submit their VAT returns. Soon, MTD will expand to cover income tax for sole traders and landlords with incomes over £50,000, and later corporation tax.
If you run a limited company, partnership, or even a small sole trader business, you’ll likely be affected in the near future.
Making Tax Digital applies in stages, and different groups of taxpayers are being brought into the system over time. Here’s a breakdown:
- VAT-registered businesses:
Since April 2022, all VAT-registered businesses – even those below the £85,000 turnover threshold – must keep digital records and file VAT returns using MTD-compatible software. - Self-employed and landlords:
From April 2026, individuals with an annual income of over £50,000 from self-employment or property will need to comply with MTD for Income Tax Self Assessment (ITSA).
From April 2027, the same rules will apply to those earning over £30,000. - General partnerships:
Partnerships are expected to be included in the MTD rollout after 2027, though no fixed date has yet been announced. - Corporation tax:
MTD for Corporation Tax is planned, but HMRC hasn’t given a start date. Businesses should expect a few years’ notice before it becomes mandatory. - Those exempt:
Certain individuals and businesses may be exempt due to age, disability, or location (for example, no internet access). Exemptions are considered on a case-by-case basis and must be applied for through HMRC.
In short, if you run a business, earn self-employed income, or receive rental income, you will eventually fall under MTD rules. Preparing now by switching to digital record-keeping makes the transition far smoother.
Deadlines and Phased Rollout
Make sure you look into what category you fall under. If you are self employed and you think you will hit the £50k a year mark, you should look into it, even if you don’t make that much, you should be prepared.
- Now: VAT-registered businesses must file returns through MTD software.
- April 2026: Self-employed and landlords with income above £50,000 must join MTD for Income Tax Self Assessment (ITSA).
- April 2027: Self-employed and landlords with income above £30,000 must comply.
- Future: MTD for Corporation Tax is expected, though dates aren’t yet confirmed.
How to Get Ready for MTD
Preparing for Making Tax Digital doesn’t have to be overwhelming. By breaking it down into simple steps, you can make the transition smooth and stress-free.
1. Choose MTD-Compatible Software
HMRC requires that you use approved software to keep records and submit returns. Popular choices include Xero, QuickBooks, Sage, and FreeAgent. Each has different strengths:
- Xero – great for growing businesses that want flexibility.
- QuickBooks – user-friendly, ideal for sole traders and small businesses.
- Sage – powerful for more complex businesses with payroll needs.
- FreeAgent – popular with contractors and freelancers.
King & Taylor can help you select the software that best suits your business and even set it up for you.
2. Digitise Your Record-Keeping
If you’ve been using spreadsheets or paper ledgers, it’s time to switch to digital records. This means keeping invoices, receipts, and expenses logged electronically. Cloud software makes this easy with features like receipt scanning apps that automatically upload data.
3. Get Used to Quarterly Submissions
Under MTD, you’ll need to file updates with HMRC every quarter, instead of once a year. This means:
- More frequent reporting (4 times a year).
- Keeping on top of bookkeeping throughout the year.
- Reduced risk of nasty surprises at year-end.
4. Train Your Team (or Yourself)
If you employ staff who manage your finances, make sure they know how to use the new system. Even if you’re a sole trader, it’s worth spending a little time learning the software so you feel confident.
5. Work With Your Accountant Early
Accountants can not only file on your behalf but also:
- Integrate your current records into compliant software.
- Provide training and ongoing support.
- Help you avoid penalties by staying ahead of deadlines.
At King & Taylor, we guide clients step by step — from setup to regular submissions — so you’re never caught off guard.
6. Test Before It’s Mandatory
If you’re not required to join MTD yet, you can still voluntarily sign up early. This lets you test the process, iron out problems, and avoid a last-minute rush.
7. Plan for the Future
MTD will eventually expand beyond VAT and income tax to cover corporation tax. By preparing now, you’ll be ahead of the curve and won’t face another major adjustment later.
Common Challenges Small Businesses Face
For many small businesses, the biggest hurdle with Making Tax Digital is moving away from familiar habits. Switching from spreadsheets or paper records to cloud software can feel like a steep learning curve, especially when time is already stretched. Quarterly reporting also means owners need to stay on top of bookkeeping throughout the year, rather than leaving it until the last minute. Some worry about making mistakes or missing deadlines, while others find the cost of new software an added pressure. With the right support, though, these challenges can be turned into opportunities to streamline finances and gain a clearer picture of the business.
Benefits of MTD Beyond Compliance
Making Tax Digital isn’t just about meeting HMRC rules. It reduces errors through digital record-keeping, gives real-time insight into cash flow and performance, and makes collaboration with accountants easier. With more accurate, up-to-date figures, businesses can make better decisions, plan ahead with confidence, and save time by streamlining invoicing, payroll, and expenses.
| Benefit | What It Means for Your Business |
|---|---|
| Greater Accuracy | Digital record-keeping reduces manual errors and lowers the risk of penalties. |
| Real-Time Financial Insights | Quarterly submissions and cloud software give a clear, up-to-date picture of income, expenses, and cash flow. |
| Better Collaboration with Your Accountant | Shared access to live records allows for proactive advice and smarter tax planning. |
| Improved Decision-Making | Regular financial updates make it easier to plan investments, manage staffing, and spot issues early. |
| More Efficient Systems | Integrating MTD software with payroll, invoicing, and expense tracking saves time and reduces stress. |
How King & Taylor Can Help
At King & Taylor, we’ve already helped many Gravesend and Kent businesses transition smoothly to MTD. From selecting the right software to training and ongoing support, we make sure you stay compliant and confident with your digital record-keeping.
