What is Making Tax Digital?


What is Making Tax Digital?

Making Tax Digital (MTD) is an HMRC initiative to encourage businesses to keep their accounts up to date and digital. MTD aims to help make tax admin more efficient.

Up to date accounts can help business owners keep better track of how their business is doing. It can also help in spotting any potential problems earlier on.

The MTD journey

Making Tax Digital covers VAT and in the future will extend to income tax self-assessment and corporation tax. Here’s a timeline of the government’s implementation plan:

MTD timeline


The first phase, MTD for VAT, went live 1 April 2019 for most VAT registered businesses. These businesses now have to keep digital records and submit their summary VAT returns directly to HMRC from their own accounting software or using bridging software from a suitable spreadsheet.

The Starling Business Toolkit is already set up to take care of this for most businesses and you can find detailed requirements on MTD for VAT on HMRC’s overview of Making Tax Digital.

From 1 April 2022, everyone registered for VAT must comply with MTD. Until this date, only businesses that had to register for VAT (turnover above £85,000), needed to use MTD. But you could also voluntarily register for VAT, if your turnover was under £85,000, and file for VAT not using MTD. The difference after 1 April 2022 is that anyone voluntarily registered for VAT now has to register for MTD.

Read our guide to learn more on VAT and how to register.

Registering for MTD

To register for MTD, you will need compliant accounting software. The Starling Business Toolkit is compliant and when you're MTD registered, can keep track of the VAT your business may owe to HMRC, in real time. You can submit your VAT returns directly from your bank account.

MTD compliant accountancy software is also available through the Starling Marketplace with partners Xero and Quickbooks. Both offer companies a range of information resources on MTD.

You can sign up for MTD on the HMRC website. You will need:

  • Your business email address
  • A Government Gateway user ID and password - if you do not have a user ID, you can create one when you use the service
  • Your VAT registration number and latest VAT return

If you don’t already pay by direct debit, make sure to sign up at least 3 days before your return is due. For those already paying by direct debit, check with the government site for sign up timings.

MTD for Income Tax

Phase two will be MTD for Income Tax. This is expected to go live 1 April 2024. The annual tax return will be replaced by four quarterly submissions plus a final adjustment submission.

If your accountant typically makes lots of adjustments at the year end it may be that some of these bigger tweaks need to be done in each quarterly return. For instance, if you’re recording your invoices mainly for VAT and credit control purposes, you may not usually adjust your stock or depreciation and capital allowance figures until the year end.

The quarterly reporting will be required for any business or landlord with a turnover (not profit) over £10,000 per year.

Digital Tax Accounts

HMRC have set up digital tax accounts for each individual and business. These allow the taxpayer to see, ‘in real time’, the updated records that HMRC holds for most taxes. Although this is referred to as real time, many records are only updated at certain times during the month or after a few days delay.

It’s also possible to make changes to some of those records online instead of having to write or hang on the telephone for an individual at HMRC to deal with the change.

Next steps

Find out more about phase 2 of MTD in our business guide Making Tax Digital: Extension to income tax self-assessment.

This article is intended as general information only and does not constitute advice in any way. For any specific questions, you may want to consult a qualified accountant.

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