Making Tax Digital (MTD): Common Myths & FAQs

 

Making Tax Digital (MTD) is a government initiative designed to modernise and digitalise the UK tax system as part of the Government’s 10-year Tax Administration Strategy. Due to changes in enforcement dates and other factors, however, there has also been a fair amount of confusion and misinformation being spread about the changes – which is why we’re here to help! 

 

What Exactly Is Making Tax Digital (MTD)?

Put plainly, Making Tax Digital (also called MTD for short) is a phased initiative by HMRC to move the UK tax system to one entirely online by starting with larger businesses before including self-employed individuals. This aims to make processes more efficient and easier for business tax payers, and reduce barriers to entry for new businesses. It also focuses on digitalising the way taxes are recorded and submitted – moving away from traditional paper-based methods.

MTD legislation was initially announced back in 2015 with a scope that covered VAT, corporation tax, and income tax for those who are self-employed and/or landlords. To date, MTD has only been introduced for VAT-registered businesses (those with a VAT taxable turnover of over £90,000 or businesses who have chosen to self-register even if they are below this turnover threshold). The changes to this VAT registration threshold came into effect on April 1st 2024 – increasing the threshold from £85,000 to £90,000.

To comply with MTD, you must choose a compatible software with a recommended provider, and there is a list on the Government website. While there are over 544 options to choose from, at MMG Chartered Accountants, we work with the most popular and widely-supported ones, including FreeAgent, QuickBooks, and Xero (we’ve even shared a post on some common shortcuts in these software packages to let you explore their features in more detail).

You can check your eligibility for MTD and register via the Government website at https://www.gov.uk/guidance/sign-up-your-business-for-making-tax-digital-for-income-tax. You can also voluntarily sign up early to help test and improve the processes before they come into force on the 6th of April 2026.

 

When Does MTD Come Into Effect? 

Making Tax Digital is currently in effect for all VAT-registered businesses. This has been in place since April 2019, when all businesses with a taxable turnover above £85,000 were required to follow the guidelines for MTD and ensure they have moved to an MTD-compatible accounting software. Since April 2022, all VAT-registered businesses have been required to file their tax returns digitally – marking phase 1 of the MTD implementation plans. Since April 1st 2024, the VAT registration threshold has changed from £85,000 to £90,000, and the deregistration threshold has changed from £83,000 to £88,000. Find out more on the Government website. 

Due to delays and changes to the originally announced policies, MTD for other business types will now come into effect from the 6th of April 2026. The new timeline for making your business fully MTD-compliant is as follows:

  • April 6th 2026: deadline for ensuring compliance with MTD if you have a gross annual taxable income over £50,000 from self-employment and/or property letting (Add to Google Calendar)
  • April 6th 2027: deadline for ensuring compliance with MTD if you have a gross annual taxable income over £30,000 from self-employment and/or property letting (Add to Google Calendar)
  • There is currently no announced deadline for MTD compliance for businesses or individuals making less than £30,000 gross annual taxable income from self-employment and/or property letting.

 

Common Making Tax Digital (MTD) Myths

There are a lot of myths and misconceptions around MTD policies and we’ve listed some of the most common ones below.

 

1) MTD will increase my tax bill

We’re not too sure where this myth arose from, but a common worry is that MTD will result in businesses having to pay more tax. This is untrue as MTD is about making procedural changes to the way records are kept and filed only. Instead of using paper-based accounting, MTD urges businesses to use accounting software which will help automate a lot of the work and calculations, as well as keep your records accurate. There will be no changes to tax rates or calculations as a direct result of MTD.

 

2) MTD means I need to completely digitalise the way I take payments 

While MTD does require digital record-keeping for submitting your accounts to HMRC, it doesn’t necessarily mean you have to ditch paper entirely. You can still collect paper receipts and invoices, but you’ll need to scan them or manually enter the information into your MTD-compliant software (which usually only takes 10-15 seconds as most software is mobile-friendly and photos of receipts can be taken from your mobile device). 

 

3) Spreadsheets can accomplish the same results as accounting software for MTD

Unfortunately, spreadsheets alone won’t make your business MTD-compliant. Spreadsheets can’t directly submit your VAT return data to HMRC which is a critical component of compliance with MTD. However, bridging software can connect your spreadsheet to MTD-compliant software to accompany your digital records. Speak to your accountant about this process or contact our team. 

 

4) MTD is optional for small businesses

This is untrue – MTD compliance is mandatory for all VAT-registered businesses with a turnover above the VAT threshold. While some businesses can choose to opt in to MTD early, this doesn’t make the overall policy optional.

 

5) MTD Requires Real-Time Tax Submissions

While MTD requires businesses to keep digital records and submit all tax returns electronically, it doesn’t require real-time submissions. Businesses just need to submit their returns in line with the usual deadlines and using MTD-compatible software.

 

FAQs on Making Tax Digital (MTD)

 

1) Is Making Tax Digital (MTD) going to happen?

Yes! MTD Yes, MTD came into effect for VAT-registered businesses in April 2019. See further up this article for key upcoming dates over the next few years.

 

2) How do I set up MTD on HMRC?

If you are VAT registered, you will automatically be signed up to MTD for VAT. If you have yet to become VAT registered or you’re unsure of your eligibility for MTD, follow these steps:

 

3) Who is exempt from Making Tax Digital?

At present, you may be exempt from MTD if:

  • Your business’ turnover is below the VAT threshold of £85,000 (though you can choose to opt-in voluntarily).
  • You are unable to use digital tools due to age, disability, or location (lack of digital infrastructure).
  • You hold religious beliefs that prevent the use of electronic systems.

To apply for an exemption, you must contact HMRC directly and provide evidence supporting your claim. See https://www.gov.uk/guidance/apply-for-an-exemption-from-making-tax-digital-for-vat for more details.