Preparing for Making Tax Digital (MTD) for Income Tax

Making Tax Digital (MTD) for Income Tax is fast approaching, with the first phase taking effect from April.

With fewer than 50 days until implementation (at the time of writing), now is the time for affected individuals and businesses to ensure they understand their obligations and are prepared for the transition.

If you are unfamiliar with MTD, we recommend reading our previous articles, which outline the background and answer some of the most frequently asked questions:

If you are continuing to read, it is likely that MTD will apply to you from April. The key question now is: what practical steps should you take?

1. Consider your obligations under Making Tax Digital for Income Tax

Under MTD, you will be required to keep digital records and submit quarterly updates to HMRC using compatible software.

There are a number of HMRC-approved software providers available. A full list can be found here:

https://www.tax.service.gov.uk/find-making-tax-digital-income-tax-software/how-will-you-use-it

The options we most commonly recommend are:

Xero
- A reliable, cloud-based accounting platform with excellent training resources. It is market-leading for good reason and offers a comprehensive solution for businesses seeking robust reporting and scalability.
Dext Prepare
- A simpler option, particularly well suited to sole traders and smaller businesses. It allows you to photograph receipts and link your bank account, helping to reduce manual input and streamline record-keeping.
- It is also possible to use spreadsheets, provided they are structured correctly and integrated with compatible bridging software.

The right solution will depend on the size and complexity of your business, and how involved you would like to be in the day-to-day bookkeeping.

2. Enrol with HMRC

If you are required to join Making Tax Digital for Income Tax this year, you should either have received, or will shortly receive, a letter from HMRC confirming this.

We recommend enrolling well in advance of the 6 April deadline to allow sufficient time for setup and testing. You can register here:

https://www.gov.uk/guidance/sign-up-your-business-for-making-tax-digital-for-income-tax

3. Recognise the benefits

Although MTD will require more frequent submissions to HMRC, there are clear advantages.

Quarterly updates provide greater visibility over your tax position throughout the year, helping you plan ahead and set funds aside accordingly. Maintaining digital records in real time should also reduce the pressure traditionally associated with the January self-assessment deadline.

We recognise that this represents a significant change for many businesses. If you would like to discuss how Making Tax Digital for Income Tax will affect you, or would value support in selecting and implementing software, contact us today and our team would be pleased to assist.