What is MTD we hear you ask? No, it’s not “Month to Date”, “Metric Tonnes per Day” or even “Marine Technology Directorate”! We’re talking about Making Tax Digital.
The scheme was originally announced by HMRC in 2017, but it’s been years in the making (a bit like Avatar 2!).
What’s changing?
MTD will require businesses and individuals to keep digital records, use MTD-compliant software and submit updates every quarter.
Why is it changing?
The digital initiative aims to:
- Streamline and automate tax processes
- Increase efficiency
- Eliminate manual data entry
- Improve accuracy
- (here’s the big one) Ensure HMRC receives real-time information
Under MTD, HMRC aims to create one “digital account” for each taxpayer where all their different taxes are pulled in. You will then be able to view all your payments and offset credits from one tax against liabilities in another.
MTD for VAT
This was HMRC’s first dabble with MTD. After many delays (including COVID), it was mandated for all VAT-registered businesses with effect from April 2021.
If you’re a client of DNA Accountants, you might not have realised your VAT reporting is already MTD-compliant. It’s because we set up all our VAT-registered clients on Xero’s cloud-based accounting software.
Xero also takes care of MTD’s mandatory digital record keeping. Yep, it sounds a bit ominous, but Xero does this automatically behind the scenes, keeping digital records of income and expenses as well as real time bank transactions. You can enjoy peace of mind it’s all covered.
MTD for Sole Traders and Landlords
From April 2026, sole traders and landlords with an annual turnover or rental income of more than £50,000 will have to start reporting under MTD for Income Tax.
Alternatively, those with an annual turnover or rental income of more than £30,000 will start reporting under MTD from April 2027.
- Like the current system for VAT reporting, these sole traders and landlords will have to start filing quarterly digital summaries of their income and expenses using MTD-compliant software. HMRC will then send you an estimate of how much tax you owe.
- At the end of the tax year, there will be a final end-of-year statement submitted, with any allowances and reliefs added in. HMRC will then tell you how much tax you owe for the whole year.
- Oh, and the best news? You’ll no longer need to file an annual tax return.
MTD for Limited Companies
Companies will have to start filing quarterly returns under MTD after April 2026. This will be similar to the quarterly returns and annual statement for sole traders above.
MTD for Partnerships
There’s no timeline for this yet, but the returns will be along the same lines as those for sole traders and landlords.
What do I need to do next?
MTD for VAT-registered businesses has already been rolled out, so if you’re VAT-registered you should already be using MTD-compliant software.
If you’re a sole trader or landlord
2026 may seem like a long way away but, as we all know, time flies! Before you know it you’ll be at the start of April 2026 in a panic. That’s why it’s really important to take steps now, so you have a couple of years to get things in place.
This is what we’ll be recommending to all our sole trader and landlord clients:
- Open a separate bank account for your sole trader or rental property income and expenses.
There are plenty of banks that have mobile apps which many of our existing sole traders are using (e.g. Starling, Monzo and Tide). They’re easy to set up and use, you don’t need to visit a bank and their charges are normally kept low.
- Start using MTD-compliant software.
We whole-heartedly recommend Xero (check out our blog on why we only work with Xero). There’s also an app called Xero Go, aimed at non-VAT-registered sole traders and landlords. It’s priced at £4.99/month and you’ll be able to capture expense receipts and send out invoices while you’re on-the-go.
- Find a fantastic accountant.
If you don’t have an accountant already, now’s the time to start looking for one to make sure they’re part of your setup process. They can advise on the best software to use and how to keep your digital records in a way that ticks all of HMRC’s boxes.
Why we believe MTD is a good thing
MTD isn’t new to us. We’ve been submitting MTD VAT returns for our VAT-registered clients for the last 2 years and we’ve got this process down to a fine art.
Our clients who use Xero absolutely love that:
- Their accounting records are always up-to-date.
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- They can see how much profit they’ve made, meaning they also know how much they need to save for tax.
- They can make good financial decisions based on accurate data. They can tell whether they can afford a new van or laptop, or put some money into their pension scheme to save tax.
- They don’t have masses of paperwork building up.
How many times have you dumped a bag of receipts and invoices at your accountant’s door, run away in a panic and not known how much profit you’ve made or how much tax you have to pay?
MTD means you’ll never find yourself in that position again. Every quarter, you’ll know exactly where your business stands, how much profit you’ve made and how much tax is due. You’ll be able to throw away those dusty receipts as you’ll have taken a photo of each and every one when you receive them. What a great feeling that’ll be!
All that year-end stress of getting everything together for your accountant will disappear. You’ll have to become more organised for sure, but this will have its own advantages!
What are you waiting for?
As that famous Nike advert once pronounced, Just Do It! HMRC have made this mandatory so there’s no escaping MTD. It’s coming. We know it’s coming and you now know it’s coming, so let us help you start getting ready for MTD.
Book a call in here if you need any help getting started. We don’t bite and have spoken to hundreds of people just like you! Here’s what one of our new clients recently said:
“Switching to DNA Accountants from our old, highly corporate accountancy practice, was the best decision we have made for our business this year. They are not only super professional, knowledgeable and great at what they do, they are also the friendliest, bubbliest, most fun team to work with, and they made the transition so easy and stress-free, they are genuinely happy to help us with our business. Highly recommend them, 5 stars aren’t enough to award them.”
