The process of making tax digital was designed by the government so that an easy and approachable way can be offered to business people as well as organisations. This will allow them to get the tax process promptly and manage it professionally. This way the submission of tax will be done with increased efficacy and in an effective manner. You will also be able to spare your time and energy to invest in your business and organisational growth.
In this blog, we will provide information about the requirements of the MTD (Making tax digital) Scheme. This will help you to know how MTD work and the required tools that you will use to maintain well-managed online taxation. This will save a lot of your time to invest more efficiently in your business growth. Even if your organisation is under the list of thresholds that will compel you to make the tax online. We will initiate with a basic understanding of MTD (making tax digital).
A Basic Understanding of MTD (Making Tax Digital)
MTD is a way to make the tax process easy and handy. This option is placed by the government for the business individuals as well as the organisations. You will be away from the paperwork and the paper-based processes. This will make your work efficient and you will be able to save on cost, space, as well as your time.
It will affect to increase the output of your financial planning. This will let you have more time and you will be more focused on the growth of your business and organisation.
Speak to our young and clever team members to get your queries about MTD answered swiftly. Give us a call on 02086868876 to discuss your concerns and we will love to provide the best possible solutions.
Who Needs to Follow MTD?
1. MTD for VAT
If your business is VAT-registered, you must follow MTD rules, regardless of your turnover.
This includes:
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Keeping digital VAT records
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Filing VAT returns using MTD-compatible software
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Submitting returns every quarter
Important update for 2025: All new VAT-registered businesses are automatically enrolled into MTD.
2. MTD for Income Tax (MTD for ITSA)
Starting in April 2026, MTD will expand to include individuals who are:
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Self-employed (sole traders) or
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Landlords earning income through property rentals
The rollout will be phased:
| Start Date | Who It Affects |
|---|---|
| 6 April 2026 | Income over £50,000 |
| 6 April 2027 | Income over £30,000 |
| Expected April 2028 | Income over £20,000 (TBC) |
You’ll need to:
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Maintain digital records of your income and expenses
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Send quarterly updates to HMRC
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Submit a final declaration at year-end
These rules apply in addition to your usual payment deadlines (e.g. 31 January).
What Are the Benefits of MTD?
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Reduces paperwork and manual entry errors
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Saves time and boosts efficiency
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Provides real-time insights into tax liabilities
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Ensures compliance with HMRC requirements
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Helps avoid penalties by submitting on time
Threshold Scenarios – What Applies to You?
1. Your Organisation Is Above the VAT Threshold
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If your taxable turnover is above £90,000, MTD for VAT is mandatory
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You must keep digital records and submit VAT returns using MTD-compliant software
2. Your Organisation Is Below the VAT Threshold
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If you are voluntarily VAT-registered (turnover below £90,000), you are still required to follow MTD rules for VAT
3. You’re Self-Employed or a Landlord
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If your total self-employment or property income exceeds £50,000, MTD for Income Tax applies from April 2026
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If your income is under £30,000, you may not be required to comply until April 2027 or later
What Software Do You Need?
You must use HMRC-recognised MTD software to:
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Record income and expenses
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Submit VAT or income tax returns
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Stay compliant with reporting deadlines
Popular MTD-compliant tools include:
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Xero
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Sage Business Cloud Accounting
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FreeAgent
Spreadsheets alone are no longer acceptable unless they’re connected to bridging software.
What Happens If You Miss a Deadline?
HMRC has introduced a points-based penalty system for late submissions under MTD.
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One point is added for each missed deadline
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After reaching a penalty threshold, a fine is triggered (e.g. £200 for MTD for VAT)
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Points reset after a compliance period
This makes it even more important to stay organised and submit on time.
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The Bottom Line
We can bring the discussion of making tax digital towards wrapping up as you have gathered a fair amount of information that will help you to develop a basic understanding. There is no doubt that the process of making the tax digital is to provide ease to businesses individuals and organisations, however, if the process is not done right, you will not get any benefits from it. This will rather put you in trouble.
This will hinder the progress of your business growth. You can turn into being so occupied with the process that it will not spare your time and energy to invest and focus on the business. We hope these few minutes of reading will help you to process your MTD more efficiently. If you still seek for further help and information, getting in touch with a professional is always a good idea.
Disclaimer: The information about making tax digital is provided in this blog including text and graphics in general. It does not intend to disregard any of the professional advice.
