If you’re confused about Making Tax Digital, you’re not alone. Here’s what it means for your business.
Making Tax Digital (MTD) will be rolling out in phases, and if you’re a sole trader or landlord, you might be wondering what it means for you and when you need to comply.
What Actually Is Making Tax Digital?
In simple terms, MTD is HMRC’s initiative to move tax reporting into the digital age. Instead of manual records and paper returns, you will need to keep digital records and submit information to HMRC using compatible software.
The aim is to reduce errors, make tax reporting more efficient, and give HMRC (and you) a more real-time view of your tax position.
Who Does It Affect?
If you’re VAT-registered, you’re likely already using MTD for VAT – but MTD is now expanding to income tax for sole traders and landlords. If your trading or property income is over £50,000 for the 2024/25 tax year, you’ll need to comply. Even if you’re below this threshold, it’s worth understanding the system because HMRC have issued plans to reduce the thresholds to £30,000 in 2027 and potentially £20,000 in 2028.
What You Need to Do
The key requirements are straightforward:
First, you need to keep digital records. This means using software rather than paper records or basic spreadsheets. The good news is there are many affordable options designed specifically for small businesses.
Second, you need to submit updates to HMRC quarterly through MTD-compatible software. These updates show your income and expenses for the period.
Third, you’ll complete an End of Period Statement and a final declaration after the tax year ends.
Choosing the Right Software
You don’t need expensive, complicated software. Many MTD-compatible options are designed for small businesses and sole traders, with monthly costs comparable to a couple of coffees. Look for software that’s HMRC-recognised, suits your business type, and ideally integrates with your bank for easy transaction recording.
Getting Help
If this all sounds overwhelming, remember you don’t have to navigate it alone. Many accountants can either manage MTD for you or help you set up systems to do it yourself. We can also advise on which software might work best for your specific business.
The Benefits
While MTD might feel like extra bureaucracy, there are genuine benefits. Digital records mean fewer errors, better insights into your business finances, and no more shoebox of receipts. Quarterly reporting means no nasty surprises at tax return time – you’ll have a much clearer view of your tax position throughout the year.
Don’t Leave It Too Late
The best time to get MTD-ready is before you’re required to. This gives you time to find the right software, get comfortable with it, and iron out any issues without the pressure of a deadline.
If you’re unsure whether MTD applies to you or need help getting set up, that’s exactly what we’re here for.
