Making Tax Digital, explained simply

Making Tax Digital (MTD) is HMRC's push to move tax reporting away from spreadsheets and paper records and onto compatible digital software. If you've heard the term but aren't sure what it actually requires of you, here's the plain-English version.

What it actually means in practice

Instead of manually typing figures into HMRC's online portal once a year, MTD requires you to keep digital records throughout the year and submit updates using software that connects directly to HMRC. For VAT, this has been mandatory for VAT-registered businesses for some time. For Income Tax, MTD is being phased in for self-employed individuals and landlords above certain income thresholds — if this applies to you, HMRC will have written to you directly.

Why HMRC introduced it

The stated aim is to reduce errors that come from manual data entry and give both businesses and HMRC a more accurate, up-to-date picture of tax owed throughout the year, rather than everything being reconciled once annually.

What you need to do

• Use MTD-compatible software (such as Xero or QuickBooks) rather than spreadsheets or paper
• Keep digital records of your income and expenses as they happen, not batched up at year-end
• Submit quarterly updates (for Income Tax MTD) rather than one annual return

Our advice

If you're not sure whether MTD already applies to you, or when it will, that's exactly the kind of question worth a quick call rather than guessing — the thresholds and timelines have moved before and may move again. We'll tell you plainly where you stand and get your bookkeeping set up on the right software well ahead of any deadline.