If your business is registered for VAT, you’ll already be familiar with Making Tax Digital or MTD. As of April 2022, all VAT-registered UK businesses have been required to keep digital records and send quarterly VAT returns to HMRC using MTD-compatible accounting software.
By April 2026, MTD will also be mandatory for UK businesses paying Corporation Tax, and unincorporated businesses and landlords with a total income of over £50,000 a year that are liable for Tax Self-Assessment (ITSA)
But what’s involved in MTD, and what should you being doing now to prepare for the switch in 2026?
What is MTD?
Making tax Digital (MTD) is a HMRC initiative to make the UK tax system more efficient and effective. It aims to close the Tax Gap – the discrepancy between what HMRC should be collecting in taxes and the amount it actually collects – and make it easier for business to be tax compliant.
Making Tax Digital involves using MTD-compatible software to keep a digital record of all your business’ transactions – that’s all the sales and purchases made by the business – so they can be submitted for review to HMRC via the software.
A change in the tax system
One of the main differences with MTD is the introduction of quarterly tax returns in addition to the existing end-of-year report. This means businesses will be required to report their income and expenditure accounts to HMRC five times a year – once every quarter, plus an annual End of Period Statement (EOPS) and Final Declaration at the end of the financial year.
With the introduction of this new quarterly system, it’s easy to see how digitising your processes will help you stay on top of your returns and payments. If your business accounts resemble a shopping bag full of receipts and invoices, MTD will help you get organised!
Digitising your business accounts in line with MTD has other benefits, too. In addition to keeping track of your income and expenditure, some accounting software packages can also help you manage your payroll, invoices, receipts, reconciliations, and expense claims.
It will also offer your accountant a unique overview of your business’ finances. At CTT Accountancy, we use our clients’ digital books to help us spot trends, and recognise areas of improvement for their business, as well as opportunities for growth and investment.
Getting started with MTD
If you’re used to keeping spreadsheets or you’re a bit of a technophobe, the prospect of using accounting software to do your tax return might seem daunting. But at CTT Accountancy, we advise clients that the best approach is a proactive one.
“It might seem a long way off, but getting into the habit of using digital software now will make it a smoother, easier process for businesses to keep up with quarterly reporting when the time comes to make the switch.,” says CTT Accountancy Director, Amy O’Keeffe.
“We’ve had situations before where clients have panicked, trying to get compliant at the last minute, and it ends up being a big mess!”
She explains the process for getting clients started with MTD is a simple one: “We can easily set up a bank feed with the client’s chosen software that gives them access to all their business’ income and expenditure records.”
“We also sit down with our clients and show them how to use the software. Giving them training on things like attaching an invoice to their report so switching to MTD is as streamlined as possible for them.”
There’s a wide range of software packages available that support MTD and a list of these can be found on the HMRC website. The features, benefits, and pricing of each package varies and it’s worth spending a bit of time researching the different options to decide which is the right MTD software solution for you.
Do you want to access your bank feed via your mobile phone, for example? Or share data with another authorised user? Do you need a program with accessibility features? Is simplicity important to you, or customisation? These are the kinds of questions that will help you narrow down your search.
At CTT Accountancy, we have partnerships with Xero, Sage, and QuickBooks and are able to pass on discounts to our clients to make accessing MTD-ready software more affordable. We can also offer advice to help you choose which of these programs will best suit you and your business’ needs.
2026 might seem a long way off. But by ensuring your business is MTD-compliant now, you can be confident that when the time comes, you will be able to submit all your tax reports to HMRC quickly, easily and without any disruption to the running of your business.
You will also be able to reap the many other benefits of digitising your business accounts sooner.
Contact the team at CTT Accountancy for more advice on MTD and how to get started for your business.