Making Tax Digital

In recent years, the phrase "Making Tax Digital" (MTD) has become a hot topic in the world of business and accounting. But what does it really mean for you? And how will it impact your financial operations?

Whether you're a small business owner or a seasoned accountant, MTD is poised to revolutionise the way taxes are managed. So, let’s break it down for you in a straightforward top 10 FAQs to help you navigate the changes to come.

FAQ: Making Tax Digital (MTD)

Q1: What exactly is Making Tax Digital (MTD)?

MTD is a government initiative aimed at simplifying the tax system. It mandates that businesses and individuals keep digital records and submit tax returns online using compatible software. In short, paper-based tax returns are becoming a thing of the past—everything will be done electronically.

Q2: When does MTD come into effect?

MTD for VAT came into effect for most businesses on April 1, 2019. For income tax, MTD will be phased in starting in April 2026 for self-employed individuals and landlords with income above a certain threshold. So, if you haven't already, now's the time to get prepared!

Q3: Will MTD apply to everyone?

Not exactly. MTD applies to VAT-registered businesses with a taxable turnover above the VAT threshold (£85,000 as of 2025). However, MTD for Income Tax Self-Assessment (ITSA) will expand over time, starting with self-employed people and landlords earning over £50,000 annually.

Q4: What do I need to do to comply with MTD?

You’ll need to use government-approved software to keep your financial records. This software will automate calculations and enable you to submit VAT and tax returns directly to HMRC without the need for paper forms. If you're already using digital accounting software, you're halfway there!

Q5: How will MTD make things easier for businesses?

MTD aims to reduce errors and administrative burdens by streamlining the entire process. The automation of tax returns means less room for mistakes, fewer manual entries, and quicker submissions. Plus, the real-time nature of MTD means businesses can stay on top of their tax obligations throughout the year—no last-minute rush!

Q6: What happens if I don't comply with MTD?

Failure to comply can lead to penalties, interest charges, and possible audits. However, if you're already using digital accounting software, compliance will likely be straightforward. It's important to prepare early to avoid stress down the line.

Q7: Will MTD affect my tax rate?

No, MTD does not change your tax rate. What it does is change the way you report and manage your tax obligations. It’s simply about moving from paper-based systems to a digital process.

Q8: Is there any help available to understand MTD?

Absolutely! Numerous resources are available, from guides on HMRC’s website to seminars, webinars, and blogs from accounting professionals. The Tax Faculty is also here to help you stay updated and answer any questions you might have.

Making Tax Digital is here to stay—and it’s only going to become more prevalent as time goes on. While it may seem daunting at first, embracing the digital tax revolution can ultimately save you time, reduce errors, and simplify your financial processes. So, don’t wait until the last minute. Start preparing for MTD today to ensure your business is on the cutting edge and ready for the future of tax reporting!

Need help? The Tax Faculty is ready to assist you on your MTD journey—get in touch for more guidance.

Looking Forward

Capital Gains Tax Expertise: The Tax Faculty LLP Managing Partner Charles Tateson Named UK Capital Gains Tax Advisor of the Year 2023

The Finance Monthly Taxation Awards recognises the achievements of tax professionals from around the globe.

Winning such an award is no small feat. It is a reflection of hard work, extensive knowledge, and an ability to navigate the intricacies of the UK tax system.

Read more about Charles and the award here.

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