Making Tax Digital (MTD) is an initiative transforming the way businesses and individuals handle their taxes; it is designed to simplify tax and accounting processes and will help to reduce the tax gap in the UK. In this article, we will explore what MTD is, what it means for you and what businesses need to do to comply.
What is Making Tax Digital (MTD)?
Put simply, MTD is a new government scheme which requires businesses and individuals completing self-assessment tax return to log records digitally and their tax records online.
The initiative is part of HMRC’s broader plan to create a more effective and transparent tax system. MTD requires businesses and self-employed individuals to use compatible software to maintain digital records and submit tax returns more frequently.
Who Does MTD Apply To?
MTD VAT has been in effect for all VAT-registered businesses since April 2022 however the government has recently announced the next phase - MTD for Income Tax. This will change how some taxpayers maintain their tax and accounting records, including:
- Landlords with gross property income above a certain threshold.
- Self-employed individuals with a turnover above a certain threshold.
Please note there are some exemptions to MTD IT which can be found here.
When Does MTD for Income Tax Come into Effect?
It will be phased in from 6th April 2026, with sole traders and landlords with annual gross income above £50,000 reported on their 2024/25 tax return being obliged to maintain digital business records and submit quarterly updates to HMRC.
From April 2027, those earning between £30,000 and £50,000 will be required to comply with the MTD for Income Tax regulations.
Please note that from April 2025, HMRC will be writing to those taxpayers who may be affected and will be using their 2023/2024 tax returns as a guide.
HMRC currently offers Making Tax Digital for Income Tax as a voluntary service. You can sign up to help test and develop the service, as well as familiarize yourself before it becomes mandatory.
How does MTD affect me?
If you are a landlord or self-employed then you will be required to complete:
- Digital Record Keeping
You will need to use MTD compatible software to keep digital records of your income and expenses. You can use software’s such as APARI, SAGE and Xero. - Quarterly Income Tax Self-Assessment Submissions
You will need to submit quarterly updates to HMRC using approved software. - Submit a Year-end Tax Return and Final Declaration
At the end of the tax year, you must submit a final declaration confirming your total earnings and allowable expenses. From here, HMRC will confirm the tax you owe which is payable by 31st January the following tax year. Please note that MTD does not charge the tax payment dates.
How Will MTD Help Me?
- Improved accuracy: Automated processes and digital records will help to reduce the risk of unintentional customer errors.
- Save Time: Digital software not only helps to keep records all in one place and automate repetitive tasks but will also help save time when submitting your end-of-year tax return. Certain softwares will allow you to link your business bank account to your digital reports so income and expenses can be automatically recorded.
- Easier Collaboration: Using software allows you to share information easily, supporting wider productivity and reducing time spent managing paperwork.
How Can I Prepare for MTD?
- Register for MTD
If you have an annual self-employment or property income of over £50,000 the deadline to register for MTD is April 2026. - Consider Softwares
You need to consider which MTD-compatible software you would like to use, there are many to choose from and each of which has its own benefits. - Seek Professional Advice
Accountants and tax professionals can help you transition smoothly to MTD compliance and provide advice on the best approach.
Navigating the new MTD scheme can be complex, but you don’t have to do it alone. At Arnold Hill, we have the expertise and experience to help you every step of the way. Our team is well equipped with the latest government requirements to ensure you stay compliant and make informed decisions. Contact us today to see how we can help you!
About Arnold Hill & Co LLP
Arnold Hill & Co LLP is an accountancy and tax firm who have been delivering tailored accountancy services for over a century. Based in the heart of London, the firm is built on strong, lasting relationships and combine tradition with a forward thinking approach to meet the evolving needs of clients, both across the UK and internationally. The firm advise a range of clients ranging from UHNWI’s, family offices and entrepreneurs to growing businesses and multinational groups.
Bobby Bhogal - Partner
