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What is Making Tax Digital (MTD)?

  • Making Tax Digital

    This article is regularly updated to reflect industry standards and requirements. Come back later to keep updated with Making Tax Digital developments.

    When handling your company’s financial processes – bookkeeping, tax planning, and others – it’s vital to be aware of the Government’s Making Tax Digital (MTD) movement.

    Yes, it’s going to be compulsory to process financial transactions this way. But, actually, it does help with admin tasks around tax by streamlining some processes, uncovering growth opportunities, and making bookkeeping generally easier.

    Today, we are taking a closer look at the practicalities of digitising your tax processes and the values of improving tax bookkeeping and transactions with cloud accounting.

    Contact Mollan today for a detailed consultation with no fees or obligations.

    What does Making Tax Digital entail?

    Making Tax Digital (MTD) is a UK government initiative designed to change tax processes by making them entirely digital.

    It aims to streamline accounting, make bookkeeping more accurate, and help small business be tax law compliant. It’ll do this by removing paperwork, minimising human error and lessening administrative burden all round.

    Making Tax Digital is designed to digitise tax record-keeping, payments, and data submission. And it is compulsory for businesses in the UK, though HMRC intends to expand the scheme to include other business tax forms.

    There are many benefits to Making Tax Digital, including:

    • Accurate bookkeeping: Digital bookkeeping for tax processes reduces human error created by manual data entry, minimising the risk of miscalculations and missed deadlines.
    • Visibility and transparency: Digital accounts provide convenient accessibility to anybody viewing and using your tax accounts, making the process transparent and manageable ‘on-the-go’.
    • Streamlining tax processes: Digital tax records allow you to receive real-time updates on tax obligations like upcoming assessments and payments. You can also access records and financial data easier.
    • Tax law compliance: Digital tax platforms like Xero follow – by law – tax regulations to ensure compliance, data security, and accuracy in financial reporting.
    • Business growth support: Digital tax processes enable businesses to make strategic plans through real-time data insights – the reduction in administrative tasks frees their time to focus on growing their business.
    • Sustainability benefits: Digital tax submissions reduce paper use, promoting sustainability practices. This is good for promoting conscientiousness and values.
    • Futureproofing: Transitioning to digital tax prepares businesses for a digital-first world while aligning with technological advancements in financial management.
    • Customisation: Digital tax platforms work with compatible software tailored to business needs and integrates seamlessly with other financial tools and systems.

    Is Making Tax Digital mandatory?

    Making Tax Digital is mandatory for the majority of businesses and individuals across the UK, depending on circumstances and annual turnover.

      • VAT-registered businesses: From April 2019, MTD became mandatory for turnovers above the VAT threshold (£85,000). Turnovers below the VAT threshold became mandatory for all VAT-registered businesses from April 2022.
      • Self-employed individuals and landlords: MTD for Self-Assessment tax returns is set to become mandatory from April 2026 for individuals earning over £50,000 annually. MTD for Income Tax Self-Assessment (ISTA) individuals earning over £30,000 annually will apply from April 2027.
    Category Criteria MTD Mandatory From
    VAT-Registered Businesses Turnover above the VAT threshold (£85,000) Apr-19
    VAT-Registered Businesses Turnover below the VAT threshold Apr-22
    Self-Employed Individuals and Landlords Income over £50,000 Apr-26
    Self-Employed Individuals and Landlords Income over £30,000 Apr-27
    Corporation Tax All companies After 2027 (expected)

    Read more about Making tax Digital for landlords.

    Corporation tax and MTD

    MTD is not mandatory for Corporation Tax yet, but is expected to be introduced in the future.

    HMRC has begun pilot programs with voluntary participants, allowing businesses to trial the digital record-keeping process while filing their Corporation Tax digitally.

    Read more about Corporation Tax here.

    MTD timelines and key dates

    MTD will become mandatory for the following processes and business types in the future. Here is the quick version:

    Category Income Threshold MTD Compliance Date
    Landlords Over £50,000 April 2026
    £30,000 – £50,000 April 2027
    Below £30,000 To be confirmed
    Sole Traders Over £50,000 April 2026
    £30,000 – £50,000 April 2027
    Below £30,000 To be confirmed

    1. Landlords

    Landlords with annual property income exceeding £50,000 will see mandatory MTD for self-assessment tax returns from April 2026. Landlords with annual property income between £30,000 and £50,000 must comply with this same change from April 2027.

    Further exemptions may apply to smaller landlords based on income thresholds, but this will change in the future.

    2. Sole traders

    Sole traders with business income over £50,000 must comply with MTD income tax self-assessments from April 2026. Sole traders with business income over £30,000 must comply from April 2027.

    Sole traders with income below £30,000 will see MTD compliance changes in the future but these are currently under review by HMRC.

    Transition processes to MTD

    Regardless of your category, following the transition steps will ease the process and make sure of efficiency with minimal operational disruption:

        • Know your obligations: Ensure you know your income level and business type to determine whether Making Tax Digital applies for you. Then check out the key implementation for your bracket.
        • Choose the best software: It’s worth taking the time to pick the best software to manage your tax records and submissions. Look for features like real-time tax tracking, automatic updates, and robust digital recordkeeping. Ensure your software is compatible with any existing software.
        • Organise digital records: Ensure to digitise all necessary financial records including income, expenses, and invoices. Make sure your data is accurate and regularly updated in the software.
        • Learn the software and train your staff: Familiarise yourself with your chosen software and train your staff to use it. Alternatively, hand all tax processes over to expert accountants.
        • Consult professionals: You can also consult accountants and tax advisers experienced in MTD to handle the transition and guide compliance, as well as setting systems up to enhance bookkeeping.
        • Test systems: Consider testing the digital submissions process ahead of time so that you’re ahead of the curve when MTD becomes entirely mandatory.

    How does MTD affect partnerships?

    There is currently no date for partnership MTD compliance, but it’s predicted that it will be phased in after sole traders and landlords.

    Traditional partnerships may fall under the MTD requirements once the initial rollout for those two groups is complete, but it is advisable to begin preparations by digitising tax records and integrating MTD-compliant software.

    Is anybody exempt from MTD?

    There are few exceptions for MTD for VAT-registered businesses, and these are businesses that are inhibited from using computers, the internet, or software. This can be due to:

        • Age
        • Disability
        • Geographical location
        • Religious objections
        • Other reasons for unreasonableness or impracticality

    Making Tax Digital with cloud accounting software and expert accountants

    Making Tax Digital is a vital step for businesses, individuals, and property owners. It makes bookkeeping more accurate, saves time, and makes regulatory compliance easier.

    When transitioning, the sooner the better so you can avoid stress as the deadlines loom and position yourself as a future-proofed thought leader in your industry.

    Mollan & Co specialises in guiding you through the process with our bespoke digital accounting solutions. We will ensure you remain compliant, efficient, and ready for future tax process challenges ahead of time.

    Get in touch today to book your free, no-obligation consultation

    Author Profile
    Owner and Managing Director at Mollan & Co

    I'm the owner and Managing Director of Mollan & Co Accountants. I'm a skilled and efficient accountant with more than 20 years of experience in the industry.

    I developed valuable skills in commercialisation through my work in the science and technology department at the Scottish University. Then, in 2002, I formed my own internet-based marketing company, producing and distributing 360° virtual reality tours for the Scottish tourism sector.

    I now use my commercial skills, expert tax knowledge and first-hand experience to help other businesses grow and flourish through strong accounting practice.

    Our success at Mollan & Co is directly related to the success of our clients.