What is MTD IT?
Making Tax Digital for Income Tax (MTD IT) is part of the UK government's broader plan to digitalise the tax system. It will require all individuals and business to keep digital records, use software that works with MTD and submit these records each quarter.
Stage one – By April 2026, all self-employed individuals and landlords earning more than £50,000 annually must comply with MTD requirements.
Stage two - By 2027 all self-employed individuals and landlords earning more than £30,000 annually.
Choosing the Right Digital Accounting Software
There are several different accounting software’s, you will need to select the most appropriate accounting software for you and your business. There are many options out there, tailoring to different tastes and needs.
When researching the different software’s here are some practical tips to consider:
How easy is it to you use, do they have a step-by-step help sheet?
Picking and familiarise yourself with digital accounting software early.
You can use the HMRC approved list.
Affordability, low or no cost software are available.
Speak to your accountant to understand how MTD affects your unique situation.
Maintaining Accurate Digital Records
Accurate record-keeping is at the heart of Making Tax Digital. Digital records not only streamline the tax reporting process but also minimise errors.
How to Implement:
Develop a habit of updating your records regularly.
Use software with automated data entry features to reduce manual input.
Organise digital folders by category, such as expenses, income, and invoices.
Understanding Quarterly Reporting
Everyone meeting the MTD criterial will need to submit quarterly updates to HMRC through there chosen software. This means submitting income and expense reports four times a year, plus one final set of accounts.
Tips for Success:
Set calendar reminders to ensure timely submissions.
Automate report generation through your accounting software.
Review each quarterly report for accuracy before submission.
Embracing Real-Time Tax Information
MTD allows for more accurate, real-time tax information, offering a clearer picture of your financial obligations throughout the year.
Practical Steps:
Regularly review your financial data for discrepancies.
Preparing for the Change: Training and Support
Adapting to a digital tax system may require training and support for some individuals and businesses. Getting use to the software you choose earlier will make the transition from manual records to digital records easier, leaving time to adapt and ask questions!
How to Prepare:
Take advantage of the training sessions offered by software providers and accountants.
Understanding the Benefits of Going Digital
While the transition to digital may seem daunting, there are numerous benefits, including time savings, reduced errors, and enhanced financial insights.
Key Advantages:
Automated processes free up time for business growth activities.
Digital records reduce manual errors common in paper-based systems.
Access to real-time data helps in making informed financial decisions.
The transition to Making Tax Digital represents a significant shift in how taxes are managed in the UK. While the process may seem challenging, with the right strategies and tools, businesses and individuals can successfully navigate this change.
As you prepare for 2026, consider how digital solutions can enhance your financial management and contribute to your business's growth. How will you embrace this digital transformation? What changes will you make today to prepare for tomorrow’s digital tax landscape? Your proactive steps now will pave the way for a smoother transition and a more efficient financial future.
See more from Sam Hart here.
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