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
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.
MTD for Income Tax Self Assessment (ITSA)
MTD for Income Tax Self Assessment (ITSA) will be introduced from April 2026 for sole traders and landlords with income above £50,000 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.
Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the provided content.
Making Tax Digital for small businesses
Our comprehensive guide covers everything you need to know about Making Tax Digital (MTD) for VAT as a small business owner.
- Introduction to Making Tax Digital
- A closer look at MTD for VAT requirements
- How to sign up to MTD for VAT
- MTD for VAT: key dates for your business
- Making Tax Digital exemptions
- Making Tax Digital penalties
- Choosing the right MTD software for your business
- A closer look at MTD bridging software
- Using Xero’s MTD software