We are now just under two months from the introduction of the new Making Tax Digital (MTD). In our latest blog, we answer 12 of the most relevant questions you may have regarding MTD and what steps you need to take to get ready for its launch.
To discuss Making Tax Digital with any of our team, please contact your local Gascoynes office which can be found here.
Making Tax Digital (MTD) is being introduced by UK government as part of its long-term programme for modernising the tax system. It will require taxpayers to maintain digital records and submit their tax data electronically via compatible software – a move away from a paper-based approach. Ultimately this is being implemented to make improve tax reporting by making it more accurate, efficient and timely benefitting both businesses and HMRC. MTD was initially launched purely for VAT submissions but is now expanding to other taxation areas.
MTD is being introduced for a few primary reasons. To minimise errors, make tax compliance simpler and to provide HMRC and taxpayers a better real-time and transparent picture of tax liabilities. By introducing digital records and enforcing more frequent reporting, the “tax gap” (the difference between what should be paid and what does get paid) will naturally close. It is also looking to modernise a tax system which for so long has been very reliant on annual returns and physical paperwork.
MTD is coming into play from 6 April 2026. From this date, Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) will become mandatory for sole traders plus landlords whose annual qualifying income from self-employment and/or property exceeds £50,000. To comply with MTD, they will need to keep digital records and submit updates to HMRC on a quarterly basis.
There is a phased roll out MTD over the coming two years.
Currently there are no plans for MTD to apply for Corporation Tax. This means businesses will continue to file annual tax returns as per their current process though digital record-keeping and other reforms will naturally be encouraged in readiness for any future changes.
When MTD is implemented, businesses and individuals must keep digital records of income and expenses including dates and other relevant details. This must be kept in software that can communicate with HMRC. For example, for Making Tax Digital for Income Tax Self-Assessment, taxpayers will need to submit quarterly summaries of income and expenditures to HMRC as well as an end of year declaration through their digital system.
For compliance to MTD, financial records must be held in software that is compatible to Making Tax Digital and be able to send this information to HMRC digitally. Whilst you are still able to use spreadsheets it should only be if they are linked through bridging software that can submit the data electronically and in the correct format. Basic manual spreadsheets that aren’t digitally linked won’t meet these requirements.
If MTD applies to you or your business this will mean more frequent engagement with your accountant to share your tax data. This will help avoid the potential issue of a last-minute rush for annual tax preparation and submission and a movement to a more frequent routine-based digital bookkeeping process. Businesses must embrace digital record-keeping, understand quarterly reporting deadlines, and liaise with their accountant more regularly throughout the year.
Here are five main ways Gascoynes can help prepare you for MTD before and after its introduction.
There will be a points-based penalty system introduced by HMRC for missed submissions under MTD. Each missed deadline earns a penalty point, and once a threshold is reached, financial penalties will apply. To ensure a smooth introduction, for anyone joining MTD from April 2026 no penalty points will be applied for the first four quarterly updates if filed late year.
Instead of a single annual Self-Assessment submission, taxpayers will need to:
Businesses must work more collaboratively and regularly with their appointed accountant rather than just at a year end.
There are exemptions for those who are defined as “digitally excluded.” This could be due to age, disability, location or other reasonable grounds. This will need to be applied for. There are also automatic exemptions in some limited circumstances. For example, a Trustee or professional representative.
If you will be relevant for Making Tax Digital, businesses should start to do these five things…
For even more information on MTD, please visit HMRC’s website on Making Tax Digital for Income Tax here.
