What Small Businesses Need To Know About MTD

Making Tax Digital (MTD) is a government initiative designed to modernise the tax system and make it easier for businesses to handle their tax affairs. The aim is to replace traditional paper-based tax records with digital accounting, ensuring businesses submit accurate financial information to HMRC.

If you own a small business, understanding MTD is essential to ensure compliance and avoid penalties. In this guide, we’ll explain everything in simple terms so you know exactly what to do.

At Carter Collins & Myer, we specialise in helping small businesses confidently navigate tax complexities. With expert financial guidance, tailored digital tax solutions, and a commitment to compliance, we ensure that your business stays ahead of the curve.

Whether you need assistance choosing MTD-compatible software, optimising tax planning strategies, or understanding the latest HMRC MTD updates, our team is here to support you. We serve in various sectors and can offer you tax-compliant help.

Want expert advice on MTD for small businesses? Call us on 01706 225 617 or email enquiries@uk-ccm.com to schedule a free consultation today.

What Is Making Tax Digital?

Making Tax Digital (MTD) is a digital-first approach to tax filing that HMRC introduced. It requires businesses to keep digital records and submit tax returns using MTD-compatible software. Instead of relying on outdated methods like paper-based record-keeping or manual spreadsheets, businesses must adopt digital tools to maintain their tax records in a more structured and efficient manner.

The primary objective of MTD is to make tax administration more effective, reduce errors, and ensure businesses pay the correct amount of tax. By digitising the process, HMRC aims to minimise tax gaps caused by inaccurate reporting while simplifying tax management for business owners.

How To Comply With MTD Rules?

If your business falls under the MTD mandate, you must follow these key steps to remain compliant:

• Maintain digital records: Keep a digital record of all financial transactions, including sales, purchases, and expenses. These records must be stored in HMRC-recognised software.
• Use MTD-compatible software: Submit your tax returns through HMRC-approved accounting software that supports MTD.
• Meet submission deadlines: Ensure that your VAT returns and other tax filings are submitted within the required timeframe to avoid penalties.

Businesses that fail to comply with these regulations may face financial penalties from HMRC. The best way to ensure compliance is to use digital accounting tools immediately.

Most Common MTD Software Options

You’ll need software integrated with HMRC’s digital tax system to comply with MTD. There are various MTD software options available, including:

• QuickBooks – A user-friendly platform that automates tax submissions.
• Xero – Popular among small businesses for its real-time financial tracking.
• Sage – Provides cloud-based accounting solutions with built-in MTD features.
• FreeAgent – Designed for freelancers and small businesses, offering an easy-to-use interface.
• Zoho Books – An affordable option with automation features to streamline tax submissions.

Choosing the right software depends on your business size, complexity, and budget. It’s recommended to explore different options and select one that meets your needs while ensuring seamless tax filing.

How Can Small Businesses Ensure MTD Compliance?

Many small business owners may feel overwhelmed by the shift to digital tax reporting. However, compliance is more straightforward than it seems. The key is to:

• Transition to digital record-keeping as soon as possible.
• Regularly update financial records to avoid last-minute filing stress.
• Work with an accountant or bookkeeper who understands MTD.
• Familiarise yourself with the software you choose to avoid errors in submissions.

MTD compliance can make tax filing easier in the long run by reducing paperwork and improving record accuracy.

Digital Tax Filing Tips You Must Follow

Switching to digital tax filing can seem daunting, but these simple tips can make the process smoother:

• Stay organised: Keep all invoices, receipts, and financial documents in one place.
• Regularly update your records: Avoid the stress of last-minute tax filing by updating your financial information frequently.
• Set reminders for tax deadlines: Missing deadlines can result in penalties, so set up automated reminders.
• Consult an accountant: If you’re unsure about MTD compliance, seeking professional advice can prevent mistakes.
• Choose the right software: Ensure your accounting tool is compatible with HMRC’s MTD system.

Benefits Of MTD For SMEs

Although MTD requires an initial adjustment, it offers several advantages for small businesses:

• Improved Accuracy: Reduces human errors in tax calculations.
• Time-Saving: Automates financial processes, making tax management quicker.
• Better Financial Insights: Helps businesses track income and expenses more effectively.
• Easier Tax Planning: Business owners can forecast tax liabilities and prepare in advance.
• Reduced Paperwork: Eliminates the need for manual record-keeping, leading to a more streamlined workflow.

MTD For VAT

MTD was first introduced for VAT-registered businesses. If your business earns over £85,000 annually, you must legally comply with MTD for VAT. Businesses earning below this threshold can still opt-in voluntarily. Filing VAT returns digitally ensures greater accuracy and efficiency in tax reporting.

How To Get Started With Making Tax Digital

If you’re new to MTD, here’s a step-by-step Making Tax Digital guide to get started:

1. Determine if your business needs to follow MTD rules – Check whether your VAT, income tax, or corporation tax obligations require digital submission.
2. Choose MTD-compatible software – Ensure HMRC recognises your accounting software.
3. Keep digital records – Maintain up-to-date financial records digitally.
4. Register for MTD with HMRC – Sign up on HMRC’s portal to start digital tax filing.
5. Submit your tax returns digitally – Use your software to file returns directly to HMRC.
6. Monitor changes in MTD regulations – Stay updated with HMRC’s ongoing updates to MTD policies.

MTD Deadline For Small Businesses

The UK government is rolling out MTD in stages. The key deadlines are:

• April 2019 – MTD for VAT (businesses earning over £85,000).
• April 2022 – MTD for all VAT-registered businesses.
• April 2026 – MTD for Income Tax Self-Assessment (self-employed individuals and landlords earning over £50,000).

MTD Penalties And Fines

Failure to comply with rules can lead to MTD penalties and fines. HMRC operates a points-based system where businesses accumulate penalty points for missing deadlines. Continuous non-compliance results in fines, so filing tax returns on time and accurately is crucial.

Making Tax Digital Exemptions

Not all businesses are required to follow the rules. Some Making Tax Digital exemptions apply to:

• Businesses with disabilities or limited access to digital technology.
• Those who have religious objections to using electronic systems.
• Exceptional cases granted an exemption by HMRC upon request.

Businesses seeking an exemption must apply directly to HMRC with supporting documentation.

Need Help With MTD? Connect With Carter Collins & Myer Now

Making Tax Digital is a significant shift in how businesses handle tax reporting. While the transition may seem challenging initially, it simplifies the tax process, reduces errors, and helps businesses stay compliant.

Small businesses can ensure they meet their tax obligations efficiently by adopting MTD-compatible software, keeping digital records, and staying informed about HMRC’s updates. Consulting a professional accountant can provide clarity and peace of mind with corporate tax planning.

At Carter Collins & Myer, we are committed to empowering businesses with tailored financial solutions and expert advice. Whether you need assistance with bookkeeping, tax-efficient strategies, tax compliance services or business growth planning, our experienced team is here to guide you.

We understand that every business is unique, and our goal is to maximise efficiency and profitability through expert financial strategies. Contact us today at 01706 225 617 or email enquiries@uk-ccm.com to schedule a free consultation and take the next step towards seamless MTD compliance.

Frequently Asked Questions

Who needs to comply with MTD?

MTD applies to VAT-registered businesses earning above the VAT threshold (£85,000) and, from April 2026, will extend to self-employed individuals and landlords earning over £50,000. Eventually, all businesses will need to follow MTD rules.

When does MTD apply to small businesses?

MTD for VAT has been mandatory for VAT-registered businesses since April 2022, regardless of turnover. MTD for Income Tax Self-Assessment (ITSA) will apply from April 2026 to those earning above the threshold.

What are the key deadlines for MTD?

• April 2019 – MTD for VAT for businesses earning over £85,000.
• April 2022 – MTD for all VAT-registered businesses.
• April 2026 – MTD for ITSA for self-employed individuals and landlords earning over £50,000.

How does MTD affect VAT-registered businesses?

VAT-registered businesses must keep digital records and file VAT returns using MTD-compatible software. Manual submissions via HMRC’s online portal are no longer accepted.

What software do I need for MTD compliance?

Businesses must use HMRC-approved MTD software such as QuickBooks, Xero, Sage, FreeAgent, or Zoho Books to manage digital records and submit tax returns.

How do I sign up for MTD?

You can register for MTD via HMRC’s website by:

1. Ensuring you have MTD-compatible software.
2. Signing up through HMRC’s MTD portal.
3. Receiving confirmation from HMRC before submitting your tax return.

Are there any exemptions from MTD?

Exemptions are granted for businesses that:

• Have limited access to digital technology.
• Face disabilities or age-related difficulties.
• Have religious objections to using electronic systems.

What happens if I don’t comply with MTD rules?

Non-compliance results in penalty points under HMRC’s points-based system, leading to fines for repeated failures to file returns correctly and on time.

Can I still submit my tax returns manually?

No. MTD requires digital submissions using compatible software, eliminating manual returns via HMRC’s online portal for VAT-registered businesses.

How much does MTD-compliant software cost?

MTD-compatible software varies in price:

• Basic plans start at around £5-£10 per month.
• Advanced features may cost £20-£50 per month, depending on the provider and business needs.