From April 2026, all sole traders, businesses and landlords with incomes greater than £10,000 per year must operate with the new rules of Making Tax Digital (MTD).
The rollout of MTD is to streamline the tax service of the UK, aiming to bring everyone onto a single digital system for tax returns of all varieties as the tax world digitises more and more every year.
No matter who you are, once the new changes are rolled out you will need to get to grips with the new way of doing things and ensure that everything you do is fully digitised.
However, there are still all the same kinds of boxes to tick to ensure you are staying compliant and reporting all of your income accurately.
What Does MTD Mean For You As A Small Business Owner Or Landlord?
The main changes you need to be aware of are related to how you handle your tax affairs. Firstly, you need to get acquainted with new software that is government-approved and compatible with MTD.
There is a full list of software that you can use here which has already been recommended for use, but it may take a little while to get set up on your new account and get to grips with how the software works.
It is crucial that you spend the time to understand how the software works, as you could end up owing too much or too little tax if you haven’t filled everything in properly.
Another aspect of MTD is the fact you now have to keep digital records of everything related to your business. Paper receipts and records are still permitted, however every transaction that you perform must be recorded on your HMRC approved software.
You don’t have to go to the trouble of scanning every receipt or invoice you give to your customers, but it has to be accounted for in your returns individually.
Before MTD you have to submit your returns once a year in your Annual Tax Return, however from April 2024, HMRC will require you to complete a quarterly return.
This is the same as how VAT is calculated and paid now, but instead of just VAT transactions, every transaction should be recorded and presented digitally to HMRC by 5th February, 5th May, 5th August and 5th November of each year for the previous 3 months.
Benefits Of MTD For Self-Assessment
- You will have a more complete overview of your taxes throughout the year, instead of second-guessing and only discovering your turnover at the year’s end.
- Your cash flow will be more evident as you will spend more time looking through your income and expenditure every few months.
- Keeping everything digital can reduce errors in submission, which could end up costing you money if you haven’t declared everything properly.
- Your taxes will be much more visible, and you can know exactly how much you owe, and how much to hold in your company account without withdrawing it.
- You may be able to digitise receipts easily with your smartphone so it’s not a chore when you come to making your quarterly declaration.
Drawbacks Of MTD For Small Businesses and Landlords
- You must invest in specialist software that is compatible with the API of HMRC in order to file your quarterly tax returns
- You will need to take time to learn how to use this new software from scratch so your accountant can review it to make sure everything is accurate before filing your self-assessment.
- Expect your time on a computer to increase as you transfer every transaction you make onto a digital counterpart.
- This may eat into the time you have to run your business or properties because a portion of time every three months will be tied up with MTD for ITSA.
- If you make a mistake on your returns, you may be placed under an HMRC investigation where your business records may be scrutinised.
If you already have an accountant it’s highly likely you will be using software to run your business accountants and you will already be benefiting from your accountant’s oversight & input into making sure your annual submissions are accurate and timely.
Making Tax Digital FAQs
Is MTD mandatory?
Yes, everyone who earns over £10,000 per year from April 2024 must adhere to the practices of MTD. You may not be computer literate, but HMRC still expects every individual or business to submit accurately compiled returns every quarter.
Can my accountant do my MTD for me?
Yes, your authorised accountant can take care of everything to do with MTD. They will have all the software already set up and connected to HMRC, so all you have to do is send them the relevant information and they will be able to sort everything out for you with ease. You will still need to take care of the digital receipts at the customer level, but the accountant can then take it from there and compile everything together accurately for you before submitting.
Do I need to register for MTD with HMRC?
Yes, if you are setting up MTD to file the returns yourself you will have to register to file your self-assessment first and then get a Government Gateway account where you will submit the returns. If you are using an accountant, you don’t have to worry about any of that, just your customer level digital receipts.
Do landlords have to go digital?
The MTD applies to everyone earning over £10,000 per year in income. If you rent a property out for more than around £830 per month, or your total income is over this amount from all of your combined property rentals, then you must register for MTD.
Do I have to submit my VAT return digitally?
Since April 2022, all VAT returns have been part of MTD which takes place quarterly. There is no uniform date when the VAT needs to be paid by a business, landlord or sole trader because it depends on the month you were incorporated into the VAT system.
MTD is going to mean big changes for you if you earn over £10,000 and are a small business owner or a landlord. You need to start learning how to use the relevant software and begin to think more digitally when sending invoices and taking payments from customers as everything has to be recorded.
You may not need an accountant if you are able to keep track of all the changes and adapt your business to doing things a new way, but it could certainly help alleviate any worry associated with how your business deals with its finances in this new era of digitalisation.
If you feel that the change to MTD will be a struggle for you and take up precious time in your day, why not reach out to the team here at Together Accounting and we can guide you through the whole process.
Once we have you set up, all you need to do is send over your transaction data every couple of months and we will take it from there and keep you compliant at all times, owing the right amount of tax for your generated income.