Making Tax Digital: A Comprehensive Overview for Accountants
ICPA is dedicated to providing comprehensive support for accountants, helping you navigate the complexities of modern tax regulations and digital requirements. Our members benefit from a range of resources, advice lines, and guidance, ensuring you stay ahead in the ever-evolving landscape of accountancy. Whether it’s access to Tolley’s Tax Library, training services, or expert advice lines, ICPA is here to help your practice thrive.
What exactly is Making Tax Digital, what are the timescales, and what does it mean for you as an accountancy practice? Find out in our overview of what to expect…
MTD Overview and Timeline
Making Tax Digital (MTD) refers to the government’s plans to completely digitalise the UK tax system. In fact, it has already begun.
From April 2022, MTD for VAT came into force for VAT-registered businesses. From April 2026, MTD for Income Tax will apply to the self-employed and landlords with an income of £50,000+. A year later, it will apply to self-employed people and landlords with an income of £30,000+, while a date for MTD to apply to partnerships has yet to be determined.
Those who are self-employed or receive income through property can actually volunteer to use the MTD service now. There have been various pilot schemes since MTD plans were first announced, with the aim of assessing whether the service provisions meet the needs of accountants and their clients.
Software Requirements for MTD
Accountants should ensure that they have the right software in place before the new MTD changes.
All businesses or self-employed individuals (or their accountants) who fall within the MTD thresholds must use MTD-compatible software to keep and maintain accounting records, as well as to file their tax returns with HMRC.
For self-assessment purposes, these records should include (at a minimum) the date, category, and value of each transaction. VAT-registered businesses will also need to record the rate of VAT charged.
HMRC must approve the software you use for digital tax reporting and record-keeping. It has published a list of suitable providers in an article entitled Find software that works with Making Tax Digital for Income Tax.
When choosing your MTD software, you should consider other factors, as well as HMRC compliance. While free options are available, check whether these include all the functionality you need. You may also want to consider whether your MTD software integrates with your existing software, such as payroll tools, and whether it can be scaled as your business grows.
MTD Compliance for VAT, Income Tax, and Corporation Tax
All VAT-registered businesses should now be signed up for MTD – and HMRC will automatically sign up any new VAT-registered businesses unless they are exempt or apply for exemption. Your VAT-registered clients will need to authorise you to handle their MTD requirements, and the standard VAT deadlines apply.
MTD for income tax will apply from April 2026 for those earning £50K+ and from April 2027 for those earning £30K+. As yet, no plans are in place for those earning under the £30K threshold.
It is unlikely that MTD will be implemented for Corporation Tax before April 2026, but accountants should stay abreast of updates on this front.
Non-compliance with new MTD regulations will likely be penalised under HMRC’s existing points-based penalty system, which is designed not to penalise taxpayers for genuine mistakes.
Not every self-employed individual or business will be required to register for MTD; some exemptions exist. Individuals earning under £30K per annum are, as it stands, exempt, while some individuals and businesses may be able to apply for an exemption on digital exclusion grounds.
Bridging Software and Digital Links
Currently, many businesses store their accounting records in spreadsheets and manually transfer them via their Government Gateway account when required. However, under MTD rules, this will no longer be allowed.
Should a business not want to adopt MTD software, it may be able to use bridging software in the interim to transfer its data from spreadsheets to HMRC. This software does this via “digital links”: an electronic data transfer between applications, products, or programs.
Bridging software can help with MTD compliance, but it’s unlikely to be a long-term solution. It doesn’t facilitate digital record-keeping, and businesses may find that they need to reformat their spreadsheet data to work with the bridging software.
Businesses may be able to create a digital link between existing accounting software and their bridging software, but this may be time-consuming or fiddly. What’s important is that both businesses and the self-employed maintain a digital audit trail to make the taxation process simpler and more transparent.
Benefits of MTD for Accountants
For accountants, the new digital tax reporting standards bring a range of benefits.
You can improve your efficiency and productivity by switching to digital processes with all clients required to meet the same standards. You’ll enjoy real-time access to accounting data, making it easier to track performance and enable better cash flow management.
The new standards should also result in fewer errors – meaning fewer penalties. What’s more, they will provide you with insights and free up your time to focus on enhancing your client relationships.
Joining ICPA for MTD Support
If you need further support with Making Tax Digital, we’re here to help. We provide our members with comprehensive resources, advice, and guidance on all matters related to accountancy, including MTD.
From Tolley’s Tax Library access to training and support services, from networking opportunities to expertly staffed advice lines, ICPA member rewards are designed to help your practice thrive. Click here to learn more about our membership benefits and join the ICPA.
Making Tax Digital FAQs
Will MTD reduce the administrative burden for accountants?
MTD will require all accounting records and tax filing to be digital, reducing the burden of manually transferring records from spreadsheets. By adopting a set of digital standards, the administrative burden on accountants should be reduced.
How can MTD improve client relationships?
MTD software allows for real-time accounting data analysis, enabling you to better help your clients with their cash flow management. It will also reduce the likelihood of errors and free up more of your time, allowing you to provide clients with better insights.
Does ICPA provide training and support services for MTD?
Yes, MTD training and support services are among the benefits of ICPA membership.
Can MTD help with better cash flow management?
Yes. By using MTD software, you will be able to track your clients’ accounts in real time, which will allow you to look at trends and provide insights into their cash flow.
How can accountants help clients transition to MTD?
Accountants should make their clients aware of the timescales and requirements for MTD based on their specific circumstances. There are many ways in which you can help, from pointing clients in the direction of relevant resources to helping them source and set up MTD software.
What are the long-term benefits of MTD for the UK tax system?
MTD will improve accuracy and efficiency and make it easier for businesses and individuals to file their taxes correctly. The government says encouraging digitalisation will also boost productivity.
How can accountants stay up-to-date with MTD developments and changes?
ICPA membership provides you with up-to-date resources, training, and support in all aspects of the accountancy sector, including Making Tax Digital.
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