Making Tax Digital (MTD) is transforming how businesses interact with HMRC. While the rollout has been staggered, the aim is clear: to create a modern, efficient tax system that minimises errors and ensures businesses stay compliant. For those who aren’t fully prepared, MTD might feel like a significant adjustment, but with the right support, it doesn’t have to be daunting.
Here’s what MTD means for your business and how to ensure you’re ready.
What is Making Tax Digital?
MTD is HMRC’s initiative to digitise the UK tax system. It requires businesses and individuals to maintain digital records and use compatible software to submit tax returns. The goal is to reduce mistakes often linked to manual record-keeping.
The first phase started with VAT-registered businesses in 2019. As of April 2022, all VAT-registered businesses, regardless of turnover, must comply. Looking ahead, MTD for Income Tax Self Assessment (ITSA) is set to affect self-employed individuals and landlords with an income above £50,000 from April 2026 and those earning above £30,000 from April 2027.
How MTD affects your business
For businesses already using accounting software, MTD may only require minor adjustments. However, the shift could feel more significant for those relying on spreadsheets or manual records. Key changes include:
- Digital record-keeping: Paper records won’t meet the requirements. You’ll need to use HMRC-approved software to maintain records and file returns.
- Quarterly updates: For MTD for income tax, businesses and landlords will need to send quarterly income and expense updates to HMRC.
- End-of-period statements: An annual submission will still be required, summarising income and expenses for the year.
Why preparing now makes sense
Delaying preparation could mean added stress later. Getting ready now gives you time to adapt your processes, choose the right software, and iron out any issues before deadlines hit.
The transition to MTD is about more than compliance – it’s an opportunity to improve financial management. Digital tools can provide real-time insights, streamline bookkeeping, and help you make informed business decisions.
Steps to prepare for MTD
To get started:
- Assess your current system
Take a close look at your record-keeping processes. Are they paper-based or digital? Do they align with MTD requirements? - Choose compatible software
HMRC provides a list of MTD-compatible software options. Consider factors like ease of use, integration with your current systems, and your budget. Popular choices include QuickBooks, Xero, and Sage. - Get the right support
Working with an accountant familiar with MTD can save you time and ensure you’re on the right track. We can recommend suitable software, provide training, and help with the transition. - Register for MTD
If you’re already VAT-registered and using software, you may already be set up for MTD. If not, you’ll need to register through HMRC’s website. - Test your system
Before the deadlines, run through your processes to make sure everything works smoothly. Use the software to record transactions, generate reports, and, if possible, file a test submission.
Common concerns about MTD
- Cost: While there’s an initial investment in software and training, digital tools often save time and money in the long run.
- Learning curve: The switch might feel overwhelming if you’re new to digital accounting. With the right guidance, most businesses find it easier than expected.
- Ongoing updates: Some businesses need more time to keep up with quarterly submissions. Planning ahead and using automation features in your software can help.
How we can help
We understand that every business is different. That’s why we offer tailored support to help you navigate MTD requirements. Whether you need advice on software, training for your team, or ongoing compliance support, we’re here to help.
MTD is more than just a compliance exercise – it’s an opportunity to modernise your accounting practices and build a stronger foundation for your business. Let us help you make the transition smoothly and confidently.
Get in touch with Stapletons if you have any queries about Making Tax Digital.
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