Making Tax Digital

What is Making Tax Digital?

Making Tax Digital (MTD) is an initiative from HMRC to move all tax administration online and will gradually become mandatory for all individuals and businesses.

MTD was introduced for VAT-registered businesses with taxable turnover above the VAT threshold (£85,000) in April 2019 and expanded to all VAT-registered businesses regardless of turnover in April 2022.

The next phase is Making Tax Digital for Income Tax Self Assessment:

• From April 2026, it will apply to self-employed individuals and landlords earning over £50,000.

• From April 2027, the threshold will lower to £30,000.

• From April 2028, the threshold will lower again if you have annual business or property income of over £20,000.

Those earning below £30,000 aren’t yet required to join, but they can do so voluntarily.

Do I need to sign up for Making Tax Digital?

HMRC does allow exemptions in limited cases for businesses, but they aren’t automatic and you would have to apply directly with HMRC.

You may be able to claim an exemption if:

• It’s not practical for you to use digital tools because of your age, disability, or location.

• You have religious beliefs that prevent you from using electronic systems.

• Your business is subject to insolvency procedures.

How do I register for MTD?

You’ll need to sign up on the Welcome to GOV.UK  website where you’ll be asked for:

• Your Government Gateway ID and password

• Your business’s VAT number

• A business email address

  
  

You might also be asked to provide:

• Your National Insurance number — if you’re a sole trader

• A company registration number and unique taxpayer reference (UTR) for corporation tax — if you’re a limited company

  
  

Once you’ve signed up, you’ll receive a confirmation email within 24 hours from HMRC.

To comply with MTD you'll need to:

1. Keep digital records of all your income and expenses.

2. Use HMRC-compatible software (such as QuickBooks, Xero or FreeAgent) to maintain records and send updates to HMRC.

3. Submit returns directly through your software, rather than manually entering figures into the Government Gateway.

Making Tax Digital doesn’t change the type records your business is obliged to keep and is designed to make life easier, with less errors. It will provide a clearer picture of your finances, support you in managing cash flow, helping you to plan ahead to avoid that last minute stress at year-end as records are kept up to date throughout the year.

For more information, you can visit the GOV UK website Making Tax Digital for Income Tax 

If you would like support on anything raised or to see how HPC Accountancy could support you and save you tax, get in touch today!