Making Tax Digital

Making Tax Digital (MTD) is HMRC's initiative to digitise tax records and submissions. It changes how businesses in the UK manage VAT, income tax, and corporation tax, aiming to reduce errors and improve efficiency.

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How Making Tax Digital Works

MTD requires you to keep digital records and submit tax returns using HMRC-approved software. For VAT-registered businesses, this has been mandatory since April 2019, and it's expanding to income tax and corporation tax.

You must use compatible software like Xero or QuickBooks to record transactions digitally and send returns directly to HMRC. This eliminates manual processes and helps prevent common errors.

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Key Requirements and Deadlines

HMRC sets specific rules for MTD compliance. Here are the essential points to ensure you meet all obligations:

VAT-registered businesses with taxable turnover above £85,000 must use MTD for VAT returns.
From April 2026, MTD for Income Tax Self Assessment applies to self-employed individuals and landlords with income over £50,000.
Keep digital records of all business transactions, including sales, purchases, and expenses.
Use HMRC-approved software that connects to their API for submissions.
Submit quarterly updates and an end-of-period statement for Income Tax under MTD for ITSA.
Ensure digital links between all software used in your record-keeping process.
Exemptions are available for businesses that are digitally excluded or have religious objections.
Penalties use a points-based system for late submissions, starting with warnings.
MTD for corporation tax is expected but not yet implemented; stay updated on announcements.
Retain digital records for at least six years as per HMRC requirements.

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Common Challenges and Getting Help

Many businesses, especially owner-managed ones, find the transition to digital records challenging. Common mistakes include using non-compatible software, inadequate record-keeping, or missing key deadlines.

If you're unsure about MTD requirements or need help setting up compliant systems, professional advice can provide clarity. Edward Harris offers proactive, jargon-free support to help businesses in Oldham and across the UK navigate these changes with confidence.

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Edward Harris Chartered Certified Accountants provides tailored accounting services for businesses in Oldham and across Greater Manchester. Contact us today for a free consultation and see how we can help your business thrive.