Making Tax Digital (MTD) is an HMRC initiative designed to modernise the UK tax system. MTD is about making it easier for individuals and business owners to stay on top of their taxes and take greater control of their finances through technology. 

Read on to discover more about Making Tax Digital, who must comply and choosing the right HMRC-compliant technology.  

What is Making Tax Digital?

Making Tax Digital is a government-led initiative that requires businesses and individuals to keep digital records of their finances and use HMRC-approved software to submit tax returns electronically. It’s part of a wider digital transformation of the UK tax system to modernise taxation. By moving away from manual paperwork and spreadsheets, MTD is intended to reduce errors, improve the accuracy of tax data and streamline submissions. 

The new system is designed to create regular financial oversight and minimise surprises at the end of the year. This is a significant improvement on the previous system with business owners now required to submit quarterly tax returns as opposed to one annually in the past. The change encourages better financial management, providing clearer visibility on income and expenses throughout the year.  

Who Needs to Comply?

First introduced for VAT-registered businesses in April 2019, Making Tax Digital is being rolled out in phases with the next phase extending to Income Tax as of April 2026. Around 780,000 self-employed individuals and landlords with an income above £50,000 will be required to maintain digital records and submit quarterly updates to HMRC, with a further 970,000 joining from April 2027.  

When you need to start using Making Tax Digital for Income Tax depends on your qualifying income and the tax year. If your qualifying income is over £50,000 for the 2024/2025 tax year, you will need to start using it from 6th April 2026. If it’s over £30,000 for the 2025/2026 tax year, you will need to start using it from 6th April 2027. Alternatively, if your qualifying income is over £20,000 for the 2026/2027 tax year, the government is set to introduce legislation to lower the qualifying income threshold.  

Eventually, Corporation Tax will also fall under Making Tax Digital so it is essential that all business owners start preparing now. 

The Benefits of Making Tax Digital

While MTD may feel like another compliance task, it offers real benefits for business owners. Rather than relying on year-end figures, you’ll have access to a live, accurate database of your income and expenses throughout the year. Real-time access to financial data allows you to plan for growth, manage cash flow and identify issues early 

Not to mention, Making Tax Digital is just one part of a broader digital shift in how businesses operate. By embracing digital accounting and record keeping, you’re laying the groundwork for other efficiencies, such as improved payroll management and streamlined workflows. The systems you put in place today can help you stay agile, compliant and competitive in a rapidly changing business environment. 

Choosing HMRC-Compliant Software

One of the most important aspects of Making Tax Digital is using compliant software. Your software needs to be able to create, store and correct digital records, send quarterly updates to HMRC and submit your tax returns. At MMG Chartered Accountants, we work with leading platforms that are fully compatible with HMRC’s requirements. These tools don’t just help with compliance, they offer useful features like automated invoicing, expense tracking and financial reporting. Our team can help you choose the right platform for your business and provide training to get you up and running quickly. 

Staying Compliant with Making Tax Digital

With the next phase of MTD on the horizon, now is the time to start preparing. Our Virtual Finance Team are here to offer you proactive support throughout the year – becoming an extension of your team. From day-to-day finance queries to tax submissions, we’re here to help guide you through every step of the journey, so you’re fully prepared when the new rules come into effect. 

Schedule a consultation or call your local branch today to stay compliant and get ahead of the Making Tax Digital rules.