Making Tax Digital

Making Tax Digital (MTD) is an initiative by the UK government to encourage taxpayers to transition from keeping paper to digital records. The scheme launched in April 2019 – and it is reported to have generated an extra £220 million in tax revenue in the first year.

If you’re a sole trader or a landlord making more than £10,000 in rent, you won’t be affected until 2026. Currently, the changes affect VAT-registered businesses with an annual turnover of more than £85,000. But the plan is to extend this to all VAT-registered businesses. It will also be implemented for Income Tax in 2026 (for the self-employed and landlords) and also Corporation Tax. Making Tax Digital will be compulsory for landlords, sole traders and limited company businesses from April 2026.

The idea behind Making Tax Digital was to reduce the “errors and mistakes” that are common to businesses when it comes to doing their taxes. Being able to record taxes digitally will not only be a more sustainable process but it will make it faster, easier and more efficient.

Using accounting software and quarterly updates will (hopefully) cut down errors that often occur when businesses make manual calculations or transcribe their records by hand from one format to another. Overall, the plan is to help businesses to feel confident that they’ve done their taxes correctly the first time round. It will cut down overheads for both HMRC and the businesses themselves.

What will be different for sole traders?

  • Send Income Tax digitally rather than via Self Assessment
  • You can sign up now, even if you’re doing a Self Assessment
  • You need compatible software to keep records
  • You’ll send HMRC an overview of your income and expenses every 3 months
  • You’ll see estimates of what you owe each quarter

Frequently Asked Questions

  • Which accounting software platforms should I be using?

    This all depends on your business and your own needs and preferences. We have experts in Sage, Xero, QuickBooks, Free Agent and more. Speak to our accountants today to discuss your options and we can find the best solutions for you!

  • How long should I be storing my Tax Records?

    In the UK, you must keep your tax records for at least six years from the end of the relevant tax year. Accounting software can help you to digitally store your records without taking up space in your office!

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