Making Tax Digital (MTD) represents one of the most significant modernisations of the UK tax system. Introduced by HMRC, its purpose is to streamline the tax process by replacing manual record-keeping with secure, accurate, and fully digital systems. For businesses and individuals alike, understanding MTD is essential to staying compliant and avoiding unnecessary penalties.
What Is Making Tax Digital?
Making Tax Digital is a government initiative designed to improve the accuracy and efficiency of tax reporting. Under MTD, eligible taxpayers must keep digital records and submit tax returns through HMRC-approved software rather than using traditional paper or manual methods.
The long-term goal of MTD is to reduce tax-related errors, increase transparency, and simplify ongoing compliance for both businesses and HMRC.
Who Must Comply with MTD?
Currently, the MTD requirements apply to the following:
VAT-registered businesses
All VAT-registered businesses, regardless of turnover, must follow MTD rules. This includes:
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Keeping digital VAT records
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Submitting VAT returns using compatible MTD software
Self-employed individuals and landlords (from April 2026)
MTD for Income Tax Self Assessment (MTD ITSA) will apply from April 2026 to individuals with annual business or property income above £50,000, and from April 2027 for those earning between £30,000 and £50,000.
Key Requirements Under MTD
Businesses and individuals within the scope of Making Tax Digital must:
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Maintain digital records
Income, expenses, VAT information, and other required data must be stored digitally using software rather than spreadsheets alone (unless linked with compatible bridging software). -
Submit returns digitally
VAT and, soon, income tax returns must be filed directly to HMRC through MTD-compatible software. -
Use approved accounting software
HMRC provides a list of compliant software options, ensuring secure and accurate transfer of data. -
Ensure digital links
All calculations and record-keeping must be connected through digital links, eliminating manual copy-and-paste errors.
Benefits of Making Tax Digital
While MTD introduces new responsibilities, it also brings significant advantages:
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Reduced errors from manual calculations
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More accurate financial records and real-time insights
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Simplified tax submissions
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Better organisation and improved compliance
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Lower risk of penalties resulting from mistakes or late submissions
For many businesses, adopting digital systems also leads to improved efficiency and a clearer understanding of their financial position.
Penalties for Non-Compliance
HMRC has implemented a points-based penalty system for missing MTD submissions. Repeated delays or failures to comply can result in accumulating penalty points and financial fines. Keeping digital records and submitting returns on time is therefore essential.
How Lucas Prestige Accountants Can Help
Transitioning to Making Tax Digital can feel overwhelming, especially for businesses unfamiliar with digital software. At Lucas Prestige Accountants, we offer complete support to ensure full compliance, including:
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Setting up and configuring MTD-compatible software
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Providing training and ongoing guidance
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Managing VAT submissions and maintaining digital records
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Preparing for MTD ITSA requirements ahead of deadlines
Our team ensures your business meets all HMRC expectations while allowing you to focus on day-to-day operations.
Making Tax Digital is reshaping the UK tax landscape. By adopting digital systems now, businesses can reduce errors, stay compliant, and operate more efficiently. Preparing early is key—especially as MTD expands to include income tax in the coming years.
If you need help navigating MTD or setting up compliant systems, Lucas Prestige Accountants is here to guide you every step of the way.