Making Tax Digital (MTD) is part of the UK Government’s drive to modernise the tax system. It aims to make tax administration more efficient, accurate, and user-friendly by requiring digital record-keeping and digital submission of tax information.
Making Tax Digital is a digital tax reporting system that replaces traditional paper-based or manual processes with digital records and software-based submissions. It encourages taxpayers to keep their financial records in a digital format and to submit tax information electronically.
MTD originally applied to VAT-registered businesses, requiring them to keep digital records and submit VAT returns using compatible software.
MTD for Income Tax is now being introduced in phases for individuals, particularly those with business or property income above certain thresholds. This extends the digital reporting requirement to Self Assessment taxpayers.
Under the current plans:
Individuals with business or property income above specified thresholds must follow MTD rules for Income Tax
Digital record-keeping and quarterly reporting may be required
Income, expenses, and tax information must be kept and submitted using compatible tax software
If you submit a Self Assessment tax return, you should prepare for how MTD may change your reporting process.
You must:
Keep accurate and up-to-date records of income and expenses in digital form
Use software that meets HMRC’s standards for digital record-keeping
This applies even if you only have one source of income or a relatively simple tax position.
Rather than submitting a single annual return, MTD generally requires periodic (often quarterly) updates to HMRC. These updates track income and expenditure over the year and help forecast your tax position.
An end-of-period statement combines your quarterly figures and reconciles them for final submission within the tax year.
MTD aims to deliver several benefits:
Improved accuracy through real-time digital submission
Better visibility of your tax position throughout the year
Fewer errors compared to manual record-keeping
Potentially smoother year-end reporting
These improvements are especially valuable to self-employed individuals and those with rental property income.
To comply with MTD for individuals, you must use HMRC-compatible software. This includes:
Accounting or bookkeeping platforms that support digital submissions
Tools that allow direct communication with HMRC systems
Apps that can record and organise digital transactions
Manual spreadsheets may still be used for tracking, but they must link with qualifying software for submissions.
Failure to comply with MTD requirements may result in:
Penalties for late or incorrect submissions
Interest on unpaid tax
Further compliance checks
Timely and accurate reporting, backed by good digital systems, reduces these risks.
Making Tax Digital represents a significant shift in how individuals handle their tax affairs. Transitioning to digital record-keeping and reporting can be challenging, especially if your affairs are complex.
Applegrow can help you:
Understand whether you are affected by MTD for Income Tax
Set up and maintain digital records
Choose the right software and tools
Prepare and submit quarterly updates
Ensure compliance with HMRC requirements
If you want to be confident in your digital tax reporting and avoid issues with HMRC, Applegrow is here to guide you step by step.
Practical support to simplify tax and grow your business with confidence.
