Making Tax Digital (MTD)

What is Making Tax Digital? (MTD)

Making Tax Digital (MTD) is HMRC’s initiative to transform the UK tax system by requiring businesses and individuals to keep digital records and submit tax returns using compatible software. The programme aims to reduce errors in tax reporting, make record-keeping more efficient, and help taxpayers get their tax right first time.

MTD for VAT is mandatory for VAT-registered businesses above the threshold, requiring quarterly digital submissions through MTD-compatible software. MTD for Income Tax Self Assessment (ITSA) is being phased in, requiring self-employed individuals and landlords to submit quarterly updates of their income and expenses digitally.

Accounting software that supports MTD must maintain digital links between records and submissions, preventing manual data re-entry. The software needs to connect to HMRC systems via API, keep digital records in the required format, and generate compliant submissions. Practices handling multiple clients require software that can manage MTD obligations efficiently across their client base.

Firms need to ensure their software infrastructure supports MTD requirements and understand the bridging software options where clients use multiple systems. The transition requires client education, process changes, and ongoing monitoring of HMRC’s expanding MTD mandate as it extends to other tax types.