Making Tax Digital (MtD)
What is it, and what does it mean for my business?
Making Tax Digital (MtD) is the Government’s initiative to reduce the tax gap. The tax gap is the gap between what taxation is due to HMRC and what is actually collected. In a nutshell, MtD will require businesses to keep digital accounting records, use software that is MtD compliant and submit quarterly figures.
I encourage business owners to view this a positive step. Wouldn’t knowing your tax liabilities as they arise (or at least quarterly throughout the year) be more beneficial than finding out months after your year-end just before you have to pay the tax…and you’re not prepared?
When will MtD affect my business?
MtD for VAT registered businesses (all business types): MtD for VAT is now live for all VAT-registered businesses. If you are currently VAT registered, then you’ll already be on an accounting software and digitally submitting quarterly VAT returns. If you are planning to register for VAT, irrespective of your business structure (Ltd, sole trader, partnership), then MtD will apply, and you will need a suitable accounting software to start recording your accounting transactions digitally from the start of your first VAT quarter.
MtD for Income Tax (self-employed individuals or landlords who complete self-assessments)
If you have an annual business income (note – this is annual income, not profit) or property income of £50,000, your MtD obligations will start on 6 April 2026
If you have an annual business income or property income of £30,000 or over, MtD will start on 6 April 2027
If your business income is less than £30k per annum, there is no current rollout date for the move to MtD, with a review of this due to start after April 2027.
MtD for Corporation Tax
The rollout of MtD to corporation tax (limited companies) has been delayed and will not be mandated before April 2026. If you have a Ltd Company and are VAT-registered, you’ll be on an accounting software anyway, but if the business is not VAT registered, there is no immediate requirement to be on a digital accounting software solution.
MtD doesn’t apply to my business just now, so do I need to use accounting software?
If MtD doesn’t apply to you just now or in the near future, then you don’t need to use accounting software. However, I always encourage business owners to use an accounting software.
Why?
Reporting: a touch of a button will let you see any number of reports to help you understand your business’ financial position, which informs decision-making and future strategies.
Accuracy: there is reduced risk for errors when using an accounting software. The software won’t let you enter figures into an invoice that don’t add up to the total for example, it will also highlight any errors in your balance sheet quicker.
Speed: once set up, entering your figures can be far quicker than doing this manually, with many software options having automations, rules and bank feeds to reduce the laborious manual entries which take time.
Using a software now, before MtD applies, also means you are well prepared for the switchover to MtD.
If you’re thinking of moving your business accounts to a software, read this article for some FAQs on choosing the right accounting software for your business.
