Making Tax Digital (MTD) is one of the most significant changes to the UK tax system in recent years. If you run a business in the UK, it's important to understand what MTD means, whether it applies to you, and what you need to do to comply. Here's a clear guide.
What is Making Tax Digital?
Making Tax Digital is a UK government initiative designed to modernise the tax system by requiring businesses and individuals to keep digital records and submit tax information to HMRC using compatible software. The goal is to reduce errors, improve efficiency, and make it easier for businesses to stay on top of their tax obligations.
MTD is being rolled out in phases, covering different taxes and different types of taxpayer over time.
Making Tax Digital for VAT
MTD for VAT was the first phase of the initiative and is now fully in force. All VAT-registered businesses — regardless of turnover — must:
- Keep digital VAT records
- Submit VAT returns using MTD-compatible software
If your business is VAT-registered, you should already be complying with MTD for VAT. If you're not, you risk penalties from HMRC.
Making Tax Digital for Income Tax (MTD for ITSA)
MTD for Income Tax Self Assessment (ITSA) is the next major phase. It will require self-employed individuals and landlords to keep digital records and submit quarterly updates to HMRC, rather than a single annual Self Assessment return.
The current rollout timeline is:
- April 2026 — MTD for ITSA applies to self-employed individuals and landlords with income over £50,000
- April 2027 — extends to those with income over £30,000
- April 2028 — expected to extend to those with income over £20,000
Under MTD for ITSA, affected taxpayers will need to submit four quarterly updates per year to HMRC, plus a final end-of-year declaration, using compatible software.
Making Tax Digital for Corporation Tax
MTD for Corporation Tax is still in development. HMRC has indicated it will not be mandated before 2026 at the earliest, and further details are expected in due course. Limited companies should monitor HMRC announcements for updates.
Does MTD Affect Your Business?
Here's a quick summary of who is currently affected:
- VAT-registered businesses — MTD for VAT is mandatory now
- Self-employed individuals and landlords with income over £50,000 — MTD for ITSA is mandatory from April 2026
- Self-employed individuals and landlords with income over £30,000 — mandatory from April 2027
- Limited companies — MTD for Corporation Tax is not yet mandatory; watch for future announcements
What Software Do You Need?
You'll need to use HMRC-recognised MTD-compatible software to keep digital records and submit returns. Popular options include:
- Xero
- QuickBooks
- FreeAgent
- Sage
Many of these tools also integrate with business bank accounts, making it easier to keep your records up to date automatically.
What Happens if You Don't Comply?
HMRC can issue penalties for non-compliance with MTD requirements. These include penalties for late submissions and for failing to keep digital records. It's important to get set up with compatible software before your MTD obligations kick in.
Keeping Your Business Address Up to Date
HMRC sends MTD-related correspondence, including compliance notices and registration confirmations, to your registered business address. Ensuring your address is reliable and up to date is an important part of staying compliant.
Spectre Offices provides registered office address services and virtual office addresses across the UK, with mail forwarding and mail scanning to keep your HMRC correspondence organised.
Our HMRC & VAT Correspondence Support service can help businesses manage HMRC correspondence as MTD requirements evolve.
For more information on how Spectre Offices supports business administration, visit our Business Finance Support page.
This blog is for general information purposes only and does not constitute financial or tax advice. Please consult a qualified accountant or tax adviser for guidance specific to your business.
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