Making Tax Digital
Modernising Tax Reporting in the UK
Starting in 2026 MTD will introduce a great deal of change for the self-employed (depending on income). RSB Taxation & Accountancy strongly recommend that our clients implement MTD well in advance of this date to have their businesses prepared and avoid any last-minute rush! We are a FreeAgent accredited practitioner and suggest all customers use this platform.
Making Tax Digital (MTD) is a flagship HMRC initiative designed to streamline the way businesses and the self-employed submit their tax information. Launched to reduce errors and simplify compliance, MTD replaces manual returns with digital record-keeping and online submissions—helping both taxpayers and HMRC spot discrepancies sooner. Common mistakes on traditional returns cost the government an estimated £8.5 billion in 2018–19 alone, underlining the need for a more accurate, real-time system.
Who Needs to Comply with Making Tax Digital and When
MTD for VAT became mandatory for most VAT-registered businesses from April 2019. MTD for Income Tax Self-Assessment (ITSA) rolls out in phases:
- If your gross self-employment or property income exceeds £50,000 in 2024–25, you must start MTD for ITSA on 6 April 2026.
- Those above £30,000 in 2025–26 join on 6 April 2027.
- From 2026–27, the threshold will fall further to £20,000 (legislation pending).
Sole traders, landlords and partnerships meeting these thresholds will need to sign up, though early-adopters can opt in sooner. Exemptions apply for certain vulnerable taxpayers and those with low digital capability.
What MTD Means in Practice
Under MTD, taxpayers must keep digital records of income and expenses using HMRC-approved software. Instead of a single annual return, quarterly updates are filed online, reducing end-of-year rushes. At year-end, you simply check, adjust and submit a final declaration—much of the data already resides in HMRC’s system. A new points-based penalty regime also replaces harsh late-filing fines with a fairer structure: miss a deadline, earn a point; accrue points, attract a penalty.
Benefits and Challenges of Making Tax Digital
By digitising tax affairs, MTD delivers clearer cash-flow insights, easier collaboration with accountants and real-time tax liability forecasts. Early adopters report fewer filing errors and better financial control.
However, businesses must invest in compatible software and train staff—an upfront cost that can be daunting for micro-enterprises. Reliable broadband and basic IT skills are also essential.
Preparing for Making Tax Digital
To get ready, review HMRC’s step-by-step guidance and choose software tailored to your needs. Bookkeepers and agents can leverage dedicated toolkits and webinars to help clients transition smoothly. Starting early not only spreads setup effort across months but also unlocks the full benefits of real-time tax management.