Chapter 1

An introduction to Making Tax Digital

We explore what Making Tax Digital (MTD) is and what MTD for VAT, ITSA & Corporation Tax mean for business owners.

Illustration of person at desk in studio filing their tax return

Making Tax Digital: what is it?

Making Tax Digital (MTD) is a government initiative to digitise the way businesses manage tax. It’s intended to:

  • make filing tax easier for businesses
  • minimise the time taken to enter returns manually
  • give businesses better financial control overall

The initiative has already been a great success, with over 1.6m businesses signing up and over 11m VAT returns successfully submitted to date.

MTD for VAT

From April 2022, all VAT-registered businesses who do not have an exemption must use HMRC-recognised MTD software to:

  • keep and maintain digital accounting records
  • submit VAT returns online

As per previous requirements, most VAT registered businesses must make submissions and payments quarterly, and the dates of these deadlines have not changed.

In addition, VAT records must now be maintained and submitted using MTD compatible software or spreadsheets that can communicate electronically with HMRC via a digital link.

The government has a list of MTD-compliant and HMRC-recognised software for small business owners. You can learn more about MTD for VAT here.

MTD for Income Tax Self Assessment (ITSA)

MTD for Income Tax Self Assessment (ITSA) will be introduced from April 2024 for unincorporated businesses and landlords with incomes above £10,000 per year.

Key points to bear in mind:

  • Unlike the existing ITSA scheme, which only requires one filing per year (October 31 for paper returns and 31 January if filing online), MTD for ITSA will require you to provide HMRC with quarterly updates and complete a process to finalise your overall tax position at the end of the year.
  • You’ll need to keep digital records of all your business income and expenses.
  • The deadlines for finalising tax affairs and making payments are not changing.

Learn more about MTD for ITSA here.

MTD for Corporation Tax

HMRC has also confirmed that MTD for corporation tax will also be introduced. The exact timing has not been announced, but HMRC have said it will not be mandated until April 2026 at the earliest.

Start using Xero for free

Access all Xero features for 30 days, then decide which plan best suits your business.

  • Included
    Safe and secure
  • Included
    Cancel any time
  • Included
    24/7 online support