How to Prepare Yourself for MTA
- MAZ
- Apr 17
- 20 min read
Index:
Choosing the Best MTD Software in 2025 — Tools, Features, and Setup
How to Use MTD for Income Tax in 2025—Quarterly Filing, Adjustments, and Real-World Fixes
Integrating PAYE and Payroll with MTD — A Seamless Transition Guide for 2025
Your 2025 MTD Action Plan — Compliance Checklist, Strategy, and Pro Tips
Key Takeaways — Summary of the Most Important MTD Preparation Points
The Audio Summary of the Key Points of the Article:
Listen to our podcast for a comprehensive discussion on:
How to Prepare Yourself for MTA
What Is Making Tax Digital (MTD) and Why It Matters in 2025
What is Making Tax Digital (MTD) in the UK?
Making Tax Digital (MTD) is the UK Government’s flagship digital transformation programme, led by HM Revenue & Customs (HMRC), aimed at modernising the tax system for businesses and individuals. The idea is simple: move from clunky annual tax returns to real-time digital tax reporting.
If you’re asking, “How to prepare yourself for MTA (Making Tax Digital) in the UK?” — the straight answer is: embrace digital record-keeping, use compatible accounting software, and prepare for quarterly updates to HMRC instead of one annual tax return. It's already mandatory for many, and by April 2026 and 2027, millions more will be pulled into the system.
Let’s break this down, with real stats and actionable advice.
Why Is MTD Being Rolled Out?
HMRC’s goal with MTD is crystal clear: close the UK’s “tax gap” — the difference between taxes owed and taxes collected. According to the latest HMRC figures, the UK tax gap in 2022-2023 was £35.8 billion, or 4.8% of total tax liabilities. A chunk of this comes from avoidable errors in self-reporting, especially among sole traders, landlords, and small business owners.
Digitalising the system helps reduce this loss.
Who Must Follow Making Tax Digital in 2025?
There are three main MTD categories to know:
1. MTD for VAT
If you’re VAT-registered, you’re already in the MTD system, no matter your turnover.
Since April 2019: Businesses above the VAT threshold (£85,000) were required to comply.
Since April 2022: Even those below the threshold must now comply.
By March 2025: Non-compliant VAT-registered businesses are being automatically signed up by HMRC unless exempted.
You must:
Use MTD-compatible software (e.g., Xero, QuickBooks, FreeAgent)
Keep digital records
Submit quarterly VAT returns digitally
📌 Full guidance: MTD for VAT on GOV.UK
2. MTD for Income Tax (MTD for ITSA)
This is the next big wave — and if you’re self-employed or a landlord, you need to pay attention.
Group | Compliance Deadline | Criteria |
Group 1 | 6 April 2026 | £50,000+ business/property income |
Group 2 | April 2027 | £30,000+ business/property income |
This will replace the annual Self Assessment process with:
Quarterly updates to HMRC via software
Digital end-of-year submissions
Use of compatible software instead of paper or spreadsheets
✔️ If your total self-employment and property income is under £30,000, you’re currently exempt — but the government is reviewing whether to expand it further.
🗂️ Guidance: Making Tax Digital for Income Tax
3. MTD for Corporation Tax (Coming Soon)
Still in the early stages, MTD for Corporation Tax is not yet mandatory, but expected after 2027. Pilot testing is underway, and businesses should keep an eye on HMRC updates.
Personal Allowance and Tax Bands (As of March 2025)
To really prepare for MTD, you also need to understand your income tax exposure under current UK rates:
Band | Income Range | Tax Rate |
Personal Allowance | Up to £12,570 | 0% |
Basic Rate | £12,571–£50,270 | 20% |
Higher Rate | £50,271–£125,140 | 40% |
Additional Rate | Over £125,140 | 45% |
⚠️ Note: If your income exceeds £100,000, your personal allowance reduces by £1 for every £2 over, disappearing entirely at £125,140.
More on this: Check income tax rates on GOV.UK
Why Businesses and Landlords Need to Act Now
Even though MTD for Income Tax won’t be mandatory until 2026 or 2027 for most, early preparation is key:
Common Pitfalls to Avoid
Relying on manual spreadsheets
Ignoring quarterly updates
Choosing software that’s not HMRC-compatible
What You Should Do Immediately
Review your income – Are you over the £30K/£50K thresholds?
Digitise your records – Switch from paper or spreadsheets now
Get MTD-compatible software – Look for platforms listed by HMRC
Start quarterly tracking now – Build the habit before it becomes law
Case Study: Penelope Bexley, a Self-Employed Florist in Cornwall
Penelope runs “Blooms by Bexley,” a local floral design business with £53,500 in annual income. In 2024, she still filed her tax return manually, with help from a family member.
Come April 2026, she must:
Use MTD software (she opts for FreeAgent)
Digitally submit quarterly updates to HMRC
File a digital end-of-year declaration
Penelope joins the MTD for Income Tax pilot in 2025, giving her a full year to adjust. Her biggest benefit? No more year-end surprises — she knows where her taxes stand every quarter and avoids penalties.
Common Questions (People Also Ask)
How does MTD affect tax refunds?
Refunds will still be processed — in fact, with quarterly updates, HMRC may even flag overpayments sooner.
Will PAYE employees be affected?
Not directly, unless they have side income over £10,000, which could bring them into Self Assessment — and eventually MTD.
Can MTD fix overtaxing issues like emergency tax?
Yes, real-time reporting means fewer surprises, and errors like emergency PAYE codes can be resolved more quickly if you report earnings digitally and frequently.
MTD is more than a government mandate — it’s a chance to streamline your finances, avoid tax mistakes, and future-proof your business or self-employment setup. Whether you're a landlord, florist, designer, or part-time consultant, 2025 is the year to get ahead.
Making Tax Digital: UK Implementation Statistics (2020-2025)
Choosing the Best MTD Software in 2025 — Tools, Features, and Setup
Why MTD Software Is Now a Must-Have
Let’s face it: spreadsheets, paper logs, and random receipts in a shoebox won’t cut it anymore. With Making Tax Digital (MTD) becoming compulsory for most landlords and sole traders by April 2026, the pressure is on to go digital — but not all software is created equal.
HMRC has approved dozens of digital tools to help you:
Record income and expenses digitally
Send quarterly updates to HMRC
Submit your final tax return seamlessly
Avoid late filing penalties or tax errors
Let’s break down the top options, how to choose the right one, and how to get set up without losing your mind.
Key Features to Look for in MTD Software
🧾 Core Capabilities You Must Have
Feature | What It Does |
Digital record keeping | Tracks business income/expenses, often linked to your bank account |
Quarterly submissions | Sends updates to HMRC every 3 months |
Self Assessment return filing | Final year-end declaration, replacing the old-style tax return |
HMRC-approved | Certified for MTD compliance |
Bridging support | If you use spreadsheets, this bridges them into the MTD ecosystem |
Top HMRC-Recognised MTD Software (2025)
FreeAgent (Best for Sole Traders, Free via NatWest)
Pricing: Free with NatWest, Mettle, or Royal Bank of Scotland accounts
MTD Functions: Full compliance – digital records, quarterly updates, final submission
Type: Web-based
Xero (Great for Growing Businesses)
Pricing: From £15/month
MTD Functions: Complete digital tax workflow
Type: Cloud-based, very user-friendly
QuickBooks Online (Ideal for Side Hustles or Freelancers)
Pricing: From £14/month
Strengths: Expense tracking, invoicing, HMRC direct link
Sage Accounting (Trusted for SMEs)
Pricing: From £14/month
MTD Functions: Full tax cycle support, including final submission
Hammock for Landlords
Pricing: From £5/month
Designed for: UK landlords with property income
Dext (Perfect for Bookkeeping Automation)
Strengths: Snap receipts, sync with banks
Pairs well with: Xero and QuickBooks
SE_Reports (Free Bridging Tool)
Pricing: Free
Use Case: Use your spreadsheet but file updates via this bridging software
Types of MTD Software: What Fits You?
🎯 Are You a Freelancer or Side Hustler?
Stick with FreeAgent (if eligible for free), QuickBooks, or Xero. Easy UI, and all-in-one features.
🏡 Are You a Landlord?
Go with Hammock or Landlord Vision — built specifically for rental income tracking, repairs, and mortgage payments.
📊 Still Use Spreadsheets?
Use bridging software like SE_Reports or Absolute Excel Filer. But hey, consider upgrading — it’s 2025.
🧾 Do You File on Behalf of Clients?
Agents should look into IRIS, Capium, or Digita Personal Tax.
How to Choose the Right MTD Software in 3 Steps
Step 1: Know Your Income Type
Are you reporting:
Self-employment income?
UK property income?
Foreign rental income?
Choose software that supports all your sources. Not every tool handles both property and trading income.
Step 2: Match the Features to Your Workflow
Some users prefer importing CSVs; others want live bank feeds. Ask yourself:
Do I want bank sync?
Do I want to scan receipts via mobile?
Do I file tax returns myself or with an agent?
Step 3: Check Quarterly and Final Submission Support
Some tools only handle quarterly updates, not final returns. Confirm it does both, unless you’re using an accountant.
How to Choose the Right MTD Software in 3 Steps
Case Study: Alistair Pennington, Freelance Software Developer in Liverpool
Alistair earns £52,000/year through freelance coding gigs. He’s VAT-registered and used spreadsheets for years.
In January 2025, he tests Xero with bank feeds from Monzo Business. The software:
Logs all his invoices and expenses
Sends quarterly VAT returns under MTD
Prepares his 2024-25 income tax updates automatically
By April 2026, he’s already compliant. The best part? No more tax-season panic.
Bonus: Setup Guide for Any MTD-Compatible Software
📥 1. Sign Up and Verify
Register with your chosen software. Most providers walk you through setup in 10 minutes.
🔗 2. Link to HMRC
Use your Government Gateway ID to authorise access. This allows the tool to talk to HMRC.
🏦 3. Connect Bank Feeds (Optional but Smart)
Automate your income/expense tracking via Open Banking.
📝 4. Start Logging Transactions
Either manually or via app/photo uploads, ensure every invoice, bill, and payment is recorded digitally.
📤 5. Submit a Test Quarterly Update
Do a dry run — most software lets you simulate an HMRC update before April 2026.
Common Pitfalls When Choosing MTD Tools
❌ Picking Software That Can’t Do Final Returns
Always check if it supports both quarterly AND annual submissions.
❌ Ignoring Personal Income Sources
Some software only handles business income — watch out if you have dividends, pensions, or savings.
❌ Overpaying for Features You Don’t Use
If you don’t need payroll or inventory, skip the premium plans.
Choosing the right MTD software in 2025 isn’t just a tick-box exercise — it can save you time, money, and stress, especially once mandatory reporting kicks in. You’ve now got a full toolkit and a checklist to pick wisely.
Making Tax Digital in the UK: Key Statistics (2020–2024)
How to Use MTD for Income Tax in 2025—Quarterly Filing, Adjustments, and Real-World Fixes
Mastering MTD in Practice: It’s Not Just About Software
You’ve chosen your software—great. But what happens next? Welcome to the real engine room of Making Tax Digital: quarterly updates, income adjustments, and final submissions.
In this part, we’ll break down:
When and how to file quarterly
What counts as a “digital record”
How to correct errors
What to do if things change mid-year
And yes, we’ll talk about real-life problems like overpayments, emergency tax corrections, and income drops
Let’s walk through it all.
The New MTD Routine: Quarterly Filing in 2025
Starting from the 2025–26 tax year (for early adopters), and mandatory from April 2026 for most, you’ll need to submit quarterly income updates to HMRC.
📅 Quarterly Reporting Deadlines
Period Covered | Deadline to Submit |
6 April – 5 July | 5 August |
6 July – 5 October | 5 November |
6 October – 5 January | 5 February |
6 January – 5 April | 5 May |
You can use calendar quarters (e.g., April–June) instead if your software supports it.
MTA Quarterly Reporting Deadlines
What Goes Into a Quarterly Update?
You’re not filing a full tax return each time — just a summary of your income and expenses.
📥 Required Entries Include:
Gross turnover (income before expenses)
Allowable business expenses (e.g., mileage, rent, software)
Property income (if applicable)
Any capital purchases (equipment, etc.)
📌 No tax is calculated at this stage — but HMRC will provide estimates based on your submissions.
Digital Record-Keeping: What You Must Log
Here’s what your software needs to track and store:
Record Type | Examples |
Income | Invoices, bank credits, cash sales |
Expenses | Receipts, supplier invoices, bank debits |
Asset purchases | Computers, equipment, vehicles |
Other data | Mileage logs, rental agreements |
Can You Still Use Spreadsheets?
Yes — but only if they’re bridged into compatible software. It’s not a loophole for manual filing.
Adjustments and Fixes: What If You Make a Mistake?
Stuff happens — and MTD allows for real-world scenarios.
🧮 Correcting Errors
Made an error in a quarterly submission? Fix it in the next quarter’s update, or at the end-of-year finalisation stage.
🔄 Amending Income Sources
Changed your business model mid-year? You can add or remove:
Self-employment sources
Rental properties
Foreign property income
Do this via your software interface — some even prompt you to confirm annually.
📉 Dropped Below £30K?
MTD obligations apply if you exceed £30,000 in income from self-employment or property. If your income drops, you may still need to comply, depending on HMRC rules. Request formal exemption if your drop is permanent.
Case Study: Beatrix Mowbray, Property Investor in Manchester
Beatrix has four rental properties and earns £42,000 annually. She voluntarily enrolled in MTD for ITSA in 2025 to prep ahead.
In July 2025, a tenant vacated early, leaving a void period that she forgot to record. Her Q1 income was overstated.
In her Q2 update, she adjusted the rental income total
HMRC recalculated the estimated tax owed
Her MTD tool (Hammock) flagged the discrepancy and auto-suggested the fix
Had she waited until year-end, she might’ve overpaid thousands in income tax.
Finalising Your Tax Year: End-of-Year Submission
After your fourth quarterly update, you’ll complete a final declaration, including:
Personal income (dividends, savings)
Reliefs (e.g., pension contributions, SEISS if applicable)
Allowances and claims
Capital Gains (if applicable)
This replaces the old-style Self Assessment tax return.
🛑 Important: The final submission deadline remains 31 January following the end of the tax year.
What If You Use an Accountant?
MTD lets you:
Handle quarterly updates yourself, then let your agent file the final declaration
Or let your accountant handle everything via agent-authorised access
✔️ Just make sure you authorise your agent through the HMRC Agent Services Account or via your software dashboard.
Real-Life Concerns: Emergency Tax and PAYE Impacts
Can MTD Fix Emergency Tax Codes?
Not directly — but if you’re submitting income regularly, HMRC can better reconcile PAYE and self-employment income. It reduces errors and helps you spot misapplied codes faster.
Will You Still Get Refunds?
Absolutely. MTD makes it easier to trigger overpayment flags earlier in the year. However, refunds are still processed after finalisation, unless HMRC adjusts your PAYE mid-year.
Common MTA Problems and How to Avoid Them
Problem | Fix |
Missed quarterly deadline | File ASAP — HMRC may waive penalties during early transition years |
Software not submitting updates | Contact vendor, or switch tools — FreeAgent, Xero, and Sage have live support |
Filed incorrect income | Adjust in the next quarter or at year-end |
Lost access to HMRC login | Use your Government Gateway recovery or contact HMRC’s MTD helpline |
Common MTA Problems and How to Avoid Them
Pro Tip: Use Pilot Testing in 2025
If you’re eligible, join the MTD pilot programme. It gives you:
Early feedback on your tax position
Real-world practice using software
A chance to resolve kinks before 2026
Using MTD day-to-day is more about habits than tech. Filing quarterly, fixing mistakes early, and knowing how to handle income swings will save you time, stress, and potentially thousands in tax.
Integrating PAYE and Payroll with MTD — A Seamless Transition Guide for 2025
Why PAYE Matters for MTD Compliance in 2025
While PAYE (Pay As You Earn) isn't directly under the Making Tax Digital (MTD) banner (yet), it interacts heavily with MTD for Income Tax, especially for directors, owner-managed businesses, and sole traders with part-time employees. And if you're transitioning to digital accounting, your payroll must keep up.
So if you're wondering how to link your digital tax updates with employee payroll, tax codes, and benefits, you're in the right place.
PAYE Basics Refresher — 2025 Rules
Here’s a quick recap of what PAYE covers:
Topic | What It Means |
PAYE | System for employers to deduct income tax and NI from employees |
RTI (Real Time Information) | Payroll must be submitted to HMRC on or before payday |
Tax Codes | Determine how much tax is deducted (e.g. 1257L, BR, D0) |
Forms | P60 (year-end), P45 (when employee leaves), P11D (benefits) |
Director’s Payroll | Directors can be paid via PAYE even in small limited companies |
📌 Full PAYE guide: HMRC PAYE Portal
Digital Payroll Integration: Why It’s Critical in 2025
Even if you’ve got MTD software for your tax returns, you’ll need seamless digital payroll if:
You run a limited company (and pay yourself a director’s salary)
You employ staff, even part-time or casual
You provide benefits in kind (like company cars or health insurance)
You want to sync payroll and expenses with MTD updates
🚨 Failing to digitise payroll creates duplicate admin, risks tax code errors, and may delay refunds or trigger HMRC reviews.
Top Payroll Software That Works with MTD-Compatible Tools
Payroll Tool | Ideal For | HMRC Approved? | MTD-Compatible Software Sync |
FreeAgent Payroll | Freelancers, sole directors | ✅ | Yes (integrated) |
Sage Payroll | SMEs with 2+ staff | ✅ | Yes |
Xero Payroll | Small teams, real-time sync | ✅ | Yes |
QuickBooks Payroll | Flexible part-time staff | ✅ | Yes |
BrightPay | Multi-company employers | ✅ | Via APIs |
IRIS | Accountants and payroll bureaus | ✅ | Full agent support |
These tools allow you to:
Submit RTI in real time
Adjust tax codes automatically
Track statutory pay (SSP, SMP, etc.)
Sync with pension providers
Send P60, P45 and P11Ds digitally
Real Example: Daniel Crayford Ltd, Tech Consultant from Nottingham
Daniel runs a micro-limited company and draws a monthly director’s salary of £1,047, below NI thresholds to stay efficient. He also has a part-time VA on payroll.
His setup in 2025:
Uses FreeAgent (free via Mettle bank)
Integrates FreeAgent Payroll
Runs payroll monthly, submits via RTI
Tracks salary costs automatically for quarterly MTD updates
Issues P60 and P11D electronically
His MTD quarterly submissions include:
His salary (from PAYE)
His dividends (entered manually or via accountant)
Expenses (logged in-app with bank feed)
By syncing payroll and tax systems, Daniel avoids dual entry and ensures compliance with zero stress.
What You Must Report Under PAYE (That MTD Will Rely On)
🧾 Income Tax
If you’re both an employee/director AND filing under MTD for self-employment or property, your PAYE income must be recorded to avoid overpayment.
🚗 Benefits in Kind (BIKs)
If you provide:
Company cars
Medical insurance
Gym memberships
You must payroll these or report via P11D. Digital payroll can handle this and reflect it in tax code adjustments.
🧍♂️ Leavers and Joiners
Notify HMRC using:
P45 when employees leave
Starter checklist when new ones join
Failure to report digitally = tax code mess-ups.
PAYE and Emergency Tax Codes: The 2025 Fix
If you’ve ever seen “BR” or “D0” tax codes and thought, “Why is so much tax being deducted?” — you're not alone.
What Triggers Emergency Tax?
No P45 from a previous job
Sudden new employment
HMRC hasn’t updated codes yet
How MTD Helps
MTD users get frequent tax reviews, which allows HMRC to reconcile errors sooner. Also:
Your accountant can spot it in your software dashboard
Digital payroll + MTD sync = no surprises by January
Handling Statutory Pay in MTD Era
Digital payroll tools automate calculations for:
Statutory Sick Pay (SSP)
Statutory Maternity Pay (SMP)
Statutory Paternity Pay
Shared Parental Leave
These affect your PAYE bill and should reflect in your tax planning under MTD. Manual errors here = over/underpayments.
How to Transition from Legacy Payroll Systems
If you’re still using:
Spreadsheets
Desktop payroll without HMRC sync
Manual calculations
You’ll need to switch to:
HMRC-recognised payroll software
RTI-compatible tools
Integrated platforms with MTD links
Transition Checklist
✅ Choose new payroll software
✅ Run dual systems for 1 month
✅ Import historic employee data
✅ Sync to HMRC via RTI
✅ Integrate with MTD tax software
How to Transition from Legacy Payroll Systems to MTD
Common Mistakes and How to Avoid Them
Mistake | Fix |
Running payroll after payday | Must submit on or before payday |
Forgetting P11Ds | Use digital forms by 6 July yearly |
Not linking payroll to MTD tool | Use API or direct integration |
Incorrect NI category | Check using HMRC’s employee checker |
Overpaying tax due to code errors | Review with digital software or ask agent |
As the digital tax ecosystem evolves, PAYE and payroll must evolve with it. Don’t wait until MTD becomes compulsory — integrating your payroll now will save you from headaches later.
UK PAYE and Payroll Statistics (2020-2025)
Your 2025 MTD Action Plan — Compliance Checklist, Strategy, and Pro Tips
The Countdown Is On: Prepare Now, Avoid the Panic Later
We’re in the final runway before MTD for Income Tax becomes mandatory. April 2026 is closer than it seems — and whether you’re a sole trader, property landlord, micro-limited company, or high-income side hustler, your prep in 2025 will decide whether tax season is smooth sailing… or a stressful slog.
This final part gives you a practical MTD-readiness checklist, forward-looking tax strategies, and insider guidance on what savvy UK taxpayers are doing right now.
Your MTD Digital Readiness Checklist for 2025–26
Let’s tick off every essential before the new tax year begins.
✅ 1. Assess Your Income Threshold
Over £50,000/year in self-employment or property income? MTD applies from 6 April 2026
£30,000–£50,000? You’re on the hook from April 2027
Under £30K? You're currently exempt — but stay alert for changes
✅ 2. Choose and Set Up MTD Software
Pick HMRC-approved software that:
Creates digital records
Submits quarterly updates
Files your end-of-year final return
Integrates with your bank or existing accounting tools
✅ 3. Review Bank and Income Links
Set up bank feeds
Create categories for income sources (self-employed, rental, foreign property, etc.)
Map regular expenses (subscriptions, fuel, insurance)
✅ 4. Practice a Dry Run with 2025 Updates
Even before MTD becomes mandatory, most software lets you:
Submit mock quarterly updates
See estimated tax liabilities
Identify income gaps or missing receipts
It’s like MTD rehearsal — without the penalties.
✅ 5. Talk to Your Accountant (Or Find One!)
If you use an agent:
Ensure they’re set up for MTD filing
Authorise them via the Agent Services Account
Decide who files what — you or them?
If you don’t have an accountant, now’s the time to consider one who understands digital tax compliance.
Your MTD Digital Readiness Checklist for 2025–26
Strategic Planning for the 2025–26 Tax Year
📊 Switch to Digital Monthly Bookkeeping
Instead of scrambling at year-end, use April 2025 as a chance to:
Start monthly income/expense checks
Use mobile receipt capture tools
Sync mileage apps and bank feeds
By January 2026, you’ll be in the rhythm and avoid overpaying or underclaiming.
🧮 Adjust Payment on Account Estimates
Under MTD, your quarterly data influences future tax estimates. Make sure to:
Keep income updated
Adjust POA via your software or HMRC portal if income is lower than expected
This avoids cashflow stress in January or July.
🧾 Claim All Allowable Expenses
Use your software to track:
Home office deductions
Phone bills
Travel and meals
Capital allowances on laptops or tools
Software like Dext or QuickBooks can flag uncategorised transactions.
Pro-Level Tips for Staying Compliant (and Sane)
🎯 Set Quarterly Tax Reminders
Your software should notify you, but set personal email or calendar pings a week before every quarterly deadline.
💻 Back Up Records to Cloud or Drive
Even if your software is secure, export CSV/PDF backups quarterly — HMRC may request digital records in the event of a check.
🗂️ Keep a Physical Folder Too
For receipts over £100 or involving assets, keep a paper trail. HMRC still likes paper in a pinch.
👥 Join HMRC Pilot or MTD Communities
Use HMRC's live webinars for early access tips
Join forums like UK Business Forums or LinkedIn MTD groups
Case Study: Kavita Brahms, Etsy Seller Turned Limited Company Director
Kavita’s handmade jewellery business exploded post-lockdown. By 2024, she had:
£65,000/year turnover
A part-time employee
VAT registration
She enrolled in MTD’s pilot early, switched to Xero with payroll, and by April 2025:
Was submitting quarterly VAT and income updates
Flagged inconsistent inventory margins via automated reports
Reduced her accountant’s fee (less data cleanup = less billable time)
She’s now mentoring other Etsy sellers on getting MTD-ready. Her tip?
“Don’t wait till HMRC forces you. MTD made me a better business owner.”
The Bigger Picture: MTD Is Just the Beginning
The Government’s Tax Administration Strategy doesn’t stop at Income Tax and VAT. Corporation Tax will eventually go digital too.
By digitising now, you’ll:
Avoid compliance chaos later
Qualify for early sign-up tax support
Be better positioned for loans, grants, and investment
Summary of All the Most Important Points Mentioned In the Above Article
Making Tax Digital (MTD) is a mandatory shift to digital tax reporting for many UK taxpayers by 2026, requiring timely preparation.
All VAT-registered businesses and landlords earning over £30,000 annually must use HMRC-recognised software for digital record-keeping and quarterly updates.
Choosing the right MTD-compatible software is essential, and options vary depending on income type, business structure, and integration needs.
Quarterly tax submissions replace the traditional once-a-year Self Assessment, increasing the need for accurate and consistent bookkeeping.
Professional tax accountants help avoid common MTD pitfalls such as incorrect income reporting, missed deadlines, and software incompatibility.
Digital payroll must be integrated with MTD systems to ensure PAYE data, tax codes, and benefits in kind are accurately recorded and submitted.
Using MTD software can highlight overpayments or emergency tax issues early, enabling faster resolution and improved cash flow management.
Accountants provide strategic advice, manage end-of-year submissions, and handle HMRC communications to minimise compliance risks.
Joining the MTD pilot scheme early offers a testing ground to understand digital submissions without facing penalties.
Preparing now with expert support ensures a smoother transition, stronger tax planning, and readiness for future MTD phases like Corporation Tax.
A Recap of: How to Prepare Yourself for MTA
FAQs
Q1. What happens if you do not comply with Making Tax Digital by your mandated start date?
A. HMRC may issue financial penalties, interest on late submissions, or compliance notices if you fail to meet your MTD obligations by the deadline set for your income threshold or VAT registration status.
Q2. Can you still file paper tax returns after Making Tax Digital becomes mandatory?
A. No, unless you qualify for a digital exclusion exemption due to age, disability, or remoteness, you will be required to file your tax returns digitally using HMRC-recognised software.
Q3. How do you apply for an exemption from Making Tax Digital requirements?
A. You must contact HMRC directly and request an exemption, providing evidence of your circumstances such as digital exclusion or religious objections to using technology.
Q4. Will Making Tax Digital affect your ability to claim tax reliefs and allowances?
A. No, you will still be able to claim all applicable tax reliefs and allowances, but they must now be reported through your MTD-compatible software or during your final declaration.
Q5. Can you use free software for MTD, and if so, which ones are available?
A. Yes, there are HMRC-recognised free options like SE_Reports and Self Assessment Direct for bridging spreadsheets, but they may have limited features compared to paid solutions.
Q6. How does Making Tax Digital apply to partnerships and jointly owned properties?
A. Partnerships will need to comply with MTD based on the total income from the business, and each partner must digitally record and submit their share of income if above the threshold.
Q7. What should you do if you miss a quarterly MTD submission deadline?
A. You should submit your update as soon as possible; HMRC may apply late submission penalties unless there is a valid reason such as a software issue or serious illness.
Q8. Can you switch between MTD software providers mid-year?
A. Yes, you can change software providers during the tax year, but you must ensure all records are properly migrated and the new software is compatible with HMRC systems.
Q9. How does MTD affect businesses using cash accounting instead of traditional accounting?
A. MTD supports both cash and accrual accounting methods; you must ensure your software reflects your chosen method when recording and submitting income and expenses.
Q10. Will HMRC offer any support or training for businesses transitioning to MTD?
A. Yes, HMRC provides webinars, YouTube tutorials, and email updates to help businesses understand MTD processes and software integration.
Q11. What happens if your income fluctuates around the £30,000 or £50,000 threshold?
A. Once you meet or exceed the threshold in a given tax year, you must comply with MTD rules from the following year, even if your income later falls below that level.
Q12. How will MTD impact landlords with properties in Scotland or Wales?
A. MTD applies UK-wide, including Scotland and Wales, and landlords must report rental income digitally if their total property income exceeds the MTD threshold.
Q13. Do you need to register separately for Making Tax Digital if already registered for Self Assessment?
A. Yes, you need to sign up specifically for MTD through your software or the HMRC portal, even if you’re already registered for Self Assessment.
Q14. Can an accountant manage MTD submissions on your behalf if you're digitally excluded?
A. Yes, authorised tax agents can handle your MTD obligations, and they can also apply for an exemption if you’re unable to manage digital submissions yourself.
Q15. How does Making Tax Digital affect company directors with multiple income sources?
A. Directors must report each income stream (salary, dividends, rental, etc.) using MTD-compliant tools, and coordinate them through the final declaration at year-end.
Q16. Does MTD apply to businesses that only earn foreign income or rental from abroad?
A. Yes, MTD includes foreign property income, and such businesses must use software capable of recording and reporting these sources digitally to HMRC.
Q17. Will you still need to complete a Self Assessment if you're on PAYE and under the MTD threshold?
A. No, if you only earn PAYE income and are not required to complete a Self Assessment, MTD will not apply unless you also have other taxable income sources.
Q18. Can you include charitable donations or Gift Aid in your MTD submissions?
A. Gift Aid and charitable contributions are generally included in the final declaration, not in quarterly updates, and must be reported through MTD software if applicable.
Q19. How will HMRC handle disputes over estimated tax liabilities in MTD?
A. Estimated liabilities shown in MTD software are provisional and not legally binding; any disputes or adjustments will be resolved at the final declaration stage.
Q20. Does Making Tax Digital impact student loan repayments or Child Benefit calculations?
A. While MTD doesn't directly calculate these, accurate digital reporting ensures HMRC can assess total income correctly, which may influence repayment thresholds or clawbacks.
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