20 May 2025
Making Tax Digital (MTD) in the UK: What You Need to Know for the 2025/26 Period
A comprehensive guide for the 2025/26 period on the Making Tax Digital (MTD) system, which digitalizes tax processes in the UK. Who is affected and how should one prepare?
A revolutionary transformation is taking place in the tax system in the UK: Making Tax Digital (MTD). This government initiative aims to digitize tax declarations, enabling both businesses and individuals to manage their tax processes more efficiently and accurately. By the 2025/26 period, the scope of MTD is expanding, and more taxpayers are being included in this system.
What is Making Tax Digital (MTD)?
Making Tax Digital (MTD) is the UK government's initiative to digitize the tax system. The aim is to make tax processes more effective, efficient, and user-friendly. MTD requires taxpayers to maintain digital records and to submit tax returns via compatible software to HMRC (Her Majesty's Revenue and Customs).
Phases and Scope of MTD
1. MTD for VAT
Start Date: April 2019
Scope: All VAT taxpayers with an annual turnover over £85,000
Requirement: Digital record-keeping and submission of VAT returns via MTD compatible software
2. MTD for Income Tax
April 2026: Self-employed individuals and landlords with an annual income over £50,000
April 2027: Self-employed individuals and landlords with an annual income over £30,000
In the Future: Implementation is planned for those with an annual income over £20,000
How to Prepare for MTD?
1. Choosing Compatible Software
It is mandatory to use accounting software that is MTD compliant. HMRC provides a list of compatible software. Popular options include Xero, QuickBooks and FreeAgent.
2. Digital Record Keeping
Businesses must record their income and expenses digitally. These records must be kept through MTD compatible software and submitted to HMRC.
3. Quarterly Reports
Under MTD, taxpayers must submit summaries of income and expenses to HMRC every quarter. These reports form the basis for the final return at the end of the tax year.
4. Final Return
At the end of the tax year, a final return must be submitted where all income and expenses are verified and necessary corrections are made. This return must be sent to HMRC by 31 January.
Advantages of MTD
Error Reduction: Digital records reduce manual errors
Time Savings: Automated processes save time
Real-Time Visibility: Allows better tracking of your financial situation
Compliance: Facilitates compliance with tax regulations
What Happens If You Do Not Comply with MTD?
Failing to comply with MTD can lead to penal sanctions. For example, in the Spring Statement of 2025, it was announced that late filing and payment penalties would be increased. Therefore, timely compliance with MTD is of utmost importance.
Simplify Your MTD Process with ORTAC
The transition to MTD can be complex, but with the right support, you can manage this process smoothly. As ORTAC, we provide all the necessary support to ensure your compliance with MTD. We guide you in choosing compatible software, maintaining digital records, and filing processes.
👉 To digitize your tax processes in the UK and comply with MTD, contact us.
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