Guide
Making Tax Digital, explained without the jargon
MTD changes how records are kept and how figures reach HMRC. It does not change when you pay. This page sets out who it applies to, when it starts for you, what good record keeping looks like and exactly how we move you across.
The basics
Who needs Making Tax Digital, and when
VAT registered businesses are already in scope. Every VAT registered business, whatever its turnover, must keep digital VAT records and file returns using compatible software.
Sole traders and landlords are being brought into MTD for Income Tax in phases, based on qualifying income from self-employment and property combined. The highest earners were phased in first, with the thresholds stepping down over subsequent years. If your combined self-employment and rental income is above the current threshold for the relevant tax year, you will need to keep digital records and send quarterly updates.
Limited companies file corporation tax as they do now. MTD for Corporation Tax has not been introduced, though the direction of travel is clear and clean digital records will make the eventual change simple.
Thresholds and dates have moved more than once. Rather than guess, send us your last tax return and we will tell you in writing which tax year you are caught from.
How records must be kept
Each sale and each purchase must be recorded digitally, with the date, the value and the tax treatment. Those records must then reach HMRC through digital links, so no figure is ever retyped between the record and the return.
- Business bank account connected so transactions arrive automatically
- Sales invoices raised in, or imported into, the same software
- Purchase receipts captured digitally and attached to the transaction
- Personal spending kept out of the business records entirely
- No manual retyping between spreadsheet, software and submission
How submissions actually work
For VAT, nothing about the timetable changes: returns and payments remain due one month and seven days after the quarter end, and the figures now come straight from the digital records.
For Income Tax, you send four quarterly updates of income and expenses during the year, then a final declaration after the tax year ends that brings in everything else and confirms the tax position. The 31 January payment date does not move.
Timeline
What happens between saying yes and filing your first return
Most migrations take two to three weeks and need under an hour of your time.
- Step 01
Week one: review
We check your MTD start date, current records, VAT scheme and where the gaps are. You get a short written summary.
- Step 02
Week one: software set up
Recognised accounting software configured for your business, bank feeds connected and your chart of accounts agreed.
- Step 03
Week two: opening balances
Balances migrated from your old records and reconciled so the first period starts from the right place.
- Step 04
Week two: authorisation
We register as your agent with HMRC and confirm your MTD signup so submissions can be made on your behalf.
- Step 05
Week three: dry run
We prepare the period as though it were live, resolve anything that looks wrong and show you the figures.
- Step 06
Ongoing: filing to a timetable
Every period is prepared, sent to you for approval and filed early. You get reminders with payment references.
What happens if you do not comply
Late submissions accrue penalty points. Reach the threshold for your filing frequency and a fixed penalty follows, with further penalties for each subsequent late submission until you serve a clean period of compliance.
Late payment is charged separately, with penalties that increase the longer the debt is outstanding, plus interest running from the due date. Keeping records outside compatible software can also attract penalties in its own right. All of it is avoidable with a routine that never slips.
What this means for you
If HMRC's own guidance on Making Tax Digital already applies to you, the practical task is simply choosing compatible software and getting into a rhythm of digital records. Left until the deadline, it becomes a rushed job; handled early, it is a one-off setup and then business as usual.
We keep an eye on HMRC's published thresholds and dates on your behalf, so you are told when your position changes rather than finding out from a penalty notice.
Questions
Making Tax Digital FAQs
Not sure whether MTD applies to you yet?
Send us your last return and we will confirm your start date, what needs to change and what it costs to have it handled for you.