It's no surprise that the UK government is making a move towards a fully digital tax system, Making Tax Digital (MTD) was announced in 2015 and has been introduced in phases to help modernise tax reporting and ultimately help both you, businesses and the government themselves have more accurate reporting.

Below are the key dates for when different aspects of digital tax reporting start:

Making Tax Digital Timeline

• April 2019 – MTD for VAT became mandatory for VAT-registered businesses with taxable turnover above the VAT threshold.
• April 2022 – MTD for VAT extended to all VAT-registered businesses, regardless of turnover.
• April 2026 – MTD for Income Tax Self-Assessment (ITSA) starts for self-employed businesses and landlords earning over £50,000 annually.
• April 2027 – MTD for ITSA expands to include those earning over £30,000 annually.
• Future Date (TBA) – MTD for ITSA may apply to businesses earning over £20,000.
• Future Date (TBA) – MTD for Corporation Tax is expected to be introduced but is still under review.

Digital Tax Reporting

The Making Tax Digital (MTD) initiative is designed to streamline tax reporting and ensure businesses maintain accurate records. Under MTD, businesses and individuals must use compatible accounting software to report income and expenses digitally. The shift eliminates the traditional Self-Assessment tax return for eligible taxpayers and replaces it with quarterly updates and a final year-end submission.

By transitioning to digital reporting, HMRC aims to reduce errors, improve efficiency, and provide businesses with a more transparent overview of their tax obligations. To comply, businesses must maintain digital records, submit periodic updates, and finalise their tax return digitally.

To prepare for MTD, businesses can take two key steps:

1. Use MTD-compatible accounting software – Platforms like Xero - currently running a 90% off for 6 months offer, help automate tax calculations, streamline record-keeping, and ensure compliance with HMRC’s digital requirements.
2. Work with a professional accountant – Using a 'digital first' accountancy like Gravitate ensures expert guidance, accurate reporting, and strategic tax planning, helping businesses navigate MTD with confidence.

You can also of course speak to your current accountancy or check your current accountancy software for more details.

Making Tax Digital for Income Tax

MTD for Income Tax Self-Assessment (MTD ITSA) applies to self-employed individuals and landlords who meet the income threshold. This system replaces the annual Self-Assessment tax return with a requirement to submit four quarterly reports and a final declaration each year.

Key Points:

• From April 2026 – MTD ITSA applies to those earning over £50,000.
• From April 2027 – The threshold lowers to £30,000.
• Quarterly Reports – Taxpayers must submit updates every three months.
• Final Declaration – A final statement must be submitted by 31 January following the tax year.

Making Tax Digital for the Self-Employed

Self-employed individuals with an income above the threshold must comply with MTD ITSA. The process involves:

• Keeping digital records of income and expenses.
• Submitting quarterly updates via HMRC-compatible software.
• Filing a final declaration to confirm tax liability.

Those earning under £30,000 are currently exempt, though future expansion is possible.

Making Tax Digital for VAT

VAT-registered businesses must adhere to MTD rules, requiring digital record-keeping and filing through compatible software.

• April 2019 – Businesses with taxable turnover above £85,000 had to comply.
• April 2022 – All VAT-registered businesses, regardless of turnover, were included.

Businesses must submit VAT returns digitally and ensure their records meet MTD standards.

Signing Up for Making Tax Digital

Businesses and individuals must register for MTD through HMRC before their reporting obligations begin. The process involves:

1. Ensuring MTD-compatible software is in place.
2. Signing up via the HMRC website.
3. Authorising the chosen software to interact with HMRC.
4. Submitting digital tax returns on schedule.

Making Tax Digital Delays

Initially planned for an earlier rollout, MTD for Income Tax was postponed to allow businesses more time to prepare:

• Originally set for April 2024, it was pushed to April 2026 for those earning over £50,000.
• For those earning £30,000-£50,000, the start date was moved to April 2027.
• The introduction of MTD for Corporation Tax has yet to be confirmed.

Making Tax Digital for Landlords

Landlords earning over the threshold must also comply with MTD ITSA. The requirements are the same as for self-employed individuals:

• Maintain digital records.
• Submit quarterly updates.
• Provide a final declaration.

For landlords earning below the threshold, MTD does not currently apply.

Making Tax Digital for Corporation Tax

Corporation Tax will eventually be incorporated into MTD, though no firm date has been announced. Businesses can prepare by adopting MTD-compatible software and maintaining digital records in anticipation of future requirements.

MTD Software

To comply with MTD, businesses and individuals must use HMRC-approved software. One of the leading solutions is Xero, offering features such as:

• Automated tax calculations – Ensuring accurate submissions.
• Seamless integration with HMRC – Enabling direct tax return submissions.
• Real-time financial tracking – Helping businesses stay on top of their finances.

Other popular options include QuickBooks and FreeAgent, though Xero remains a top choice for MTD compliance due to its user-friendly interface and robust features.

Conclusion

Making Tax Digital is a major shift in UK tax reporting, requiring businesses and individuals to transition to digital record-keeping. By understanding the key dates, compliance requirements, and software options, taxpayers can ensure a smooth transition and avoid potential penalties. Those affected should take steps now to adopt digital tax tools and familiarise themselves with the new system before their reporting obligations begin.