Making Tax Digital: The Big Shift in UK Tax—Are You Ready?

Tax is going digital, and Making Tax Digital (MTD) is changing how businesses and individuals report their finances. Whether you’re a sole trader, landlord, or VAT-registered business, these changes will affect you.

What is Making Tax Digital (MTD)?

MTD is HMRC’s initiative to modernise tax reporting, requiring businesses and individuals to:

• Keep digital records of income and expenses

• Use compatible software to submit tax returns

• Provide quarterly updates, bringing tax reporting closer to real-time

• The goal? Reduce errors, improve efficiency, and make tax reporting easier for businesses and landlords.

Who Needs to Comply & When?

MTD is being rolled out in phases, so different groups will need to comply at different times:

• MTD for VAT – Already mandatory for all VAT-registered businesses, regardless of turnover.

• MTD for Income Tax Self Assessment (ITSA) – Coming in April 2026 for those earning over £50,000 from self-employment or property income.

• April 2027 – Extends to those earning over £30,000.

• April 2028 – Will include those earning over £20,000.

If you fall into one of these categories, it’s time to start preparing now!

What Happens If You Don’t Comply?

HMRC is introducing new penalties for late submissions and payments:

• 3% penalty for tax overdue by 15 days

• An additional 3% if overdue by 30 days

• 10% per annum for tax overdue beyond 31 days

Late filing penalties will also apply, with a points-based system; miss too many deadlines, and you’ll face £200 fines per late submission.

Choosing the Right Software & Bank Accounts for MTD

MTD requires approved accounting platforms, so forget manually juggling spreadsheets! HMRC provides a list of 487 compatible tools, but it’s not just software; you also need the right bank account!

Using a dedicated business account can help streamline digital record-keeping, making compliance much easier. I’ve written a separate blog post about choosing the best bank accounts and accounting software for small businesses—you might find it useful if you’re preparing for MTD! You can find it here.

Why This Matters

MTD isn’t just about compliance, it’s about reducing errors, improving efficiency, and making tax reporting easier.

And if you’re still using spreadsheets, think of it like trying to bake a cake with a wooden spoon instead of an electric mixer; it’s time to upgrade!