What is Making Tax Digital? A beginner’s guide

With digital trends reshaping every part of our lives, it’s no surprise that the UK’s taxation system is also set for a modern upgrade. Enter Making Tax Digital (MTD) — a government initiative designed to simplify tax administration and bring it into the 21st century.

If you’re just hearing about MTD or still unsure how it impacts you, don’t worry. This beginner’s guide will break down what MTD is, what’s happened so far, and what’s coming next for businesses in the UK.

What is Making Tax Digital?

MTD is a UK Government initiative introduced by HMRC to make tax reporting more efficient and reduce errors. It requires businesses and individuals to manage their taxes digitally via compatible software.

The goal is simple yet transformative:

• Reduce the likelihood of errors caused by manual submissions

• Streamline the tax process for HMRC and taxpayers alike

• Allow businesses to keep a more accurate and up-to-date record of their finances

Essentially, MTD shifts businesses away from traditional practices like paper record-keeping and manual submissions to a streamlined digital workflow. Businesses now use HMRC-approved software to maintain records and submit returns, ensuring compliance while simplifying their tax obligations.

How did Making Tax Digital start?

The MTD initiative began its rollout in April 2019, targeting VAT-registered businesses first. Here’s a quick timeline of Making Tax Digital’s progress so far:

Making Tax Digital for VAT

Since April 2019, Making Tax Digital for VAT has been compulsory for businesses that are VAT-registered with a taxable turnover above £85,000. This change alone impacted over a million businesses across the UK who were required to:

• Maintain digital VAT records.

• Submit VAT returns through MTD-compatible software.

Two years later, the rules were broadened. From April 2022, VAT-registered businesses below the £85,000 threshold also had to comply. This universal application means nearly all VAT-registered businesses must now follow MTD guidelines.

Success stories (and challenges)

The introduction of MTD for VAT has been a learning curve for many businesses. Larger enterprises adapted quickly with their in-house accounting resources. However, smaller businesses initially found the transition trickier due to software costs and digital skills gaps.

Fortunately, HMRC-approved software tools are now widely accessible and cater to businesses of all sizes, such as our tax and accounts software, BrightTax. What’s more, many SMEs report that after adopting MTD practices, accounting is now significantly simpler and less time-consuming.

For those still navigating compliance, UK accountants continue to play a critical role in supporting their SME clients during this digital shift.

What’s next? The future of Making Tax Digital

MTD is evolving, with plans to expand beyond VAT to other forms of taxation. Here’s what businesses need to prepare for:

Making Tax Digital for Income Tax

The next stage of MTD focuses on Income Tax Self Assessment (ITSA) and is aimed at self-employed individuals and landlords earning over £10,000 annually.

Originally set for earlier implementation, the timeline was recently pushed back to April 2026 for most eligible taxpayers. This means:

• From April 2026, if you meet the relevant thresholds, you’ll need to maintain digital records and update HMRC quarterly via MTD-compatible software

• General partnerships, which were initially slated for an earlier rollout, will also need to comply shortly after the rollout begins

For those affected, preparing now by understanding the software options and digital record-keeping practices is essential to ensure a smooth transition.

Making Tax Digital for Corporation Tax

Later on the horizon is Making Tax Digital for Corporation Tax, targeting limited companies. While the exact timetable hasn’t been locked down, pilots are underway, and implementation is expected to occur no earlier than 2026.

The aim remains the same — to create a seamless, transparent, and digital-first approach toward managing corporate tax filings.

While the wait for official implementation dates continues, now’s the time for impacted businesses to consult with their accountants and begin exploring compatible software options. Early adoption and understanding of MTD processes could give your business a head start once compliance becomes mandatory.

How can you prepare for Making Tax Digital?

Switching to MTD might seem daunting, but with the right tools and planning, it’s entirely manageable. Here’s how you can get started today:

1. Assess your current system – Are you keeping digital records? If not, now is the time to move away from manual methods.

2. Find MTD-approved software – Look for tools which cater for MTD.

Did you know that BrightTax is MTD for VAT compliant?

3. Consult a professional – Work with an accountant or financial advisor to streamline compliance and training.

4. Stay updated – Keep track of changes to MTD regulations by regularly checking the HMRC website.

Don’t wait until deadlines are looming — starting early will save you stress and uncertainty.

Bright is here to help

We understand that getting clients up to speed with MTD requirements can feel like a drain on your time – especially when you’d rather be focusing on profitable, advisory work.

That’s why we’ve created a set of practical, time-saving resources designed to help you educate and onboard your clients for Making Tax Digital for Income Tax Self Assessment (MTD for ITSA).

Take a look at the MTD Hub to learn more.

This content may have been developed with the assistance of AI tools. Content is reviewed by a member of the Bright team before publication. Guidance on legislation can be obtained from your industry body.