What Is Making Tax Digital & Why Does It Matter?
Making Tax Digital (MTD) is one of the biggest overhauls of the UK tax system, aiming to make tax reporting more efficient, accurate, and digital-first.
Originally launched for VAT in 2019, MTD is now expanding to cover Income Tax Self-Assessment (ITSA) and Corporation Tax, bringing quarterly reporting requirements and mandatory digital record-keeping.
Key Upcoming MTD Changes:
• From April 2026: Self-employed individuals and landlords earning over £50,000 must comply with MTD for Income Tax.
• From April 2027: The threshold drops to £30,000, bringing more taxpayers into the system.
• MTD for Corporation Tax is expected later this decade, though no fixed date has been announced.
These changes will impact accountants, business owners, and self-employed individuals, requiring new processes, digital tools, and closer collaboration between accountants and clients.
💡 At Insights Accounting, we’ve partnered with Xero to help our clients transition smoothly into MTD compliance.
1. What MTD Means for Accountants
For accountants, Making Tax Digital represents a fundamental shift in how tax services are delivered. Instead of yearly tax returns, MTD introduces quarterly submissions, meaning accountants must engage with clients more frequently.
1.1 Why We Use Xero for MTD Compliance
At Insights Accounting, we’ve chosen Xero as our go-to accounting software for MTD because:
✔ 100% HMRC-Compliant – Xero is fully integrated with MTD for VAT and ITSA.
✔ Real-Time Financial Visibility – Clients can track tax liabilities throughout the year, avoiding last-minute surprises.
✔ Automated Record-Keeping – Xero simplifies expense tracking, invoicing, and digital receipts, ensuring compliance.
✔ Seamless Accountant Collaboration – We can view and manage your tax submissions directly in Xero, reducing admin time.
💡 Want to switch to Xero and make tax compliance easier? Get in touch and let’s set you up.
2. What MTD Means for Clients (Business Owners & Self-Employed Individuals)
For clients, Making Tax Digital means more than just using new software—it requires a shift in how they manage their tax records.
2.1 Digital Record-Keeping Is Now Mandatory
• Receipts, invoices, and expenses must be recorded digitally.
• Spreadsheets alone are NOT compliant unless linked to MTD software.
• Keeping accurate, real-time records prevents tax errors and penalties.
💡 Why Xero is the best tool for businesses & landlords:
✔ Snap receipts & invoices instantly using Xero’s mobile app.
✔ Automate bank reconciliation to keep records up to date.
✔ Easily generate MTD-compliant tax reports without manual calculations.
2.2 Quarterly Tax Submissions Replace Annual Returns
Under MTD, tax isn’t just a once-a-year job anymore. Clients must now submit:
✔ Four quarterly updates to HMRC (instead of one annual return).
✔ A final year-end tax submission.
📌 Example:
A landlord earning £55,000 in rental income will now need to:
• Submit quarterly tax reports via Xero instead of waiting until January.
• Provide a final tax adjustment statement at year-end.
This means more frequent tax reporting but fewer last-minute tax bill surprises.
💡 Need help moving to Xero before MTD kicks in? Let’s talk and get you set up.
3. Common MTD Questions Answered
3.1 What If I Don’t Earn Over £30,000?
Right now, MTD for Income Tax only applies to:
• Self-employed people earning over £30,000 from April 2027.
• Landlords earning over £30,000 from April 2027.
HMRC has hinted that this threshold could be lowered further in the future, so it’s wise to prepare now.
3.2 Can I Still Use Spreadsheets?
✔ Only if linked to MTD-compatible software. Otherwise, you must switch to Xero or another compliant platformto stay within HMRC rules.
3.3 Will MTD Save Me Time?
While the transition may take time, in the long run, MTD can:
• Reduce paperwork by automating financial tracking.
• Give better real-time tax estimates to avoid surprise tax bills.
• Improve accuracy by reducing manual data entry errors.
4. How to Prepare for Making Tax Digital
For accountants:
✔ Ensure your firm is using MTD-compliant software like Xero.
✔ Educate clients about the new reporting process.
✔ Offer quarterly support services to clients needing extra help.
For businesses & landlords:
• Switch to Xero for digital record-keeping.
• Start keeping digital records now to ease the transition.
• Plan ahead for quarterly tax submissions instead of annual filings.
💡 Not sure how MTD affects you? We can help with a full MTD compliance review.
Final Thoughts: Stay Ahead of MTD Before It’s Too Late
Making Tax Digital isn’t just another HMRC initiative—it’s the future of tax reporting. Getting ahead of these changes now will save headaches later.
🚀 Want expert support to get MTD-ready with Xero? Contact us today and we’ll handle the transition for you.
References
1. HMRC, “Overview of Making Tax Digital,” 2024. Available at: gov.uk
2. AAT, “How Accountants Should Prepare for MTD,” 2024. Available at: aatcomment.org.uk
3. CountingUp, “How Will MTD Affect Accountants?” 2024. Available at: countingup.com
