Making Tax Digital (MTD)

Making Tax Digital is the UK government’s initiative to make the HMRC the most digitally advanced tax collectors in the world.

What is MTD?

It is a scheme that requires online filing and payment of taxes as well as the keeping of digital records. Eventually, every individual and business will be part of the scheme but for now only Making Tax Digital for VAT (MTDfV) commenced on 1 April 2019, for taxable businesses above the VAT Threshold of £90,000 per annum, with further legislation brought in that compels VAT registered businesses with a turnover below the threshold to submit their VAT Returns using MTDfV.

It is anticipated that other taxes will be subject to MTD in 2026.

It is not just a method of filing your VAT return digitally however, you are required to store some of your VAT information digitally and if you don’t use accounts software such as Sage Accounts or Sage Business Cloud Software, which is HMRC compliant, then you must ensure this software is digitally linked.

Why MTD?

HMRC has identified that this initiative will save the government £9billion a year, just by eliminating VAT calculation errors

Making Tax Digital for Income tax (MTD for ITSA).

It is likely, that eventually all businesses, and sole traders, regardless of size and business activity will have to follow the requirements for Making tax Digital for Income Tax.

Currently it is planned to roll this out from 6 April 2026 for the self-employed and landlords if revenue exceeds £50,000 per year and from April 2027 if revenue exceeds £30,000 per year.

These changes will compel the self-employed and landlords to either digitalise their accounts or contract this out. We have a bookkeeping and payroll division who can help with this. Please contact us for more information.

Which Making Tax Digital Software do I need?

You will need to use software that's compatible with the HMRC Making Tax Digital (MTD) programme. This software must allow you to keep digital records relating to your VAT and be able to communicate with HMRC’s computer software so you can file your returns.

Software must be able to keep and maintain the records specified by HMRC, prepare VAT Returns using the information maintained in these digital records and communicate with HMRC digitally via an Application Programming Interface (API) platform.

Sage 50 Accounts and Sage Business Cloud software will be able to collate and prepare your return for you. It will then show the return to you and ask you to declare that it is correct and confirm that you want to submit it to HMRC. Once you have submitted your return you will receive confirmation through your software that it has been received.

HMRC do not provide any free software for Making Tax Digital reporting for businesses and sole traders, however Sage 50 Accounts software or Sage Business Cloud software is MTD compliant.

If you would like assistance with running your VAT software then contact us for further information.