Making Tax Digital: What Every UK Business Needs to Know and Do Now

What Making Tax Digital is and why HMRC is doing it#

Making Tax Digital (MTD) is HMRC's programme to move all business tax record-keeping and filing online. The stated goal is to reduce the tax gap (the difference between tax owed and tax collected — estimated at £36 billion per year) by eliminating errors from manual calculation and transcription. The practical effect for businesses is that paper records and manual tax filing are being progressively replaced by digital records and software-based submissions. HMRC is rolling out MTD in phases across different tax types, having learned from the VAT rollout before extending to income tax and eventually corporation tax.

MTD for VAT: what is already required#

MTD for VAT has applied to all VAT-registered businesses since April 2022. Two requirements: digital record-keeping (all transactions relevant to your VAT return must be recorded in a digital format that links directly to the return figures — paper records or manually keyed-in spreadsheets are not compliant) and digital submission (VAT returns must be filed through HMRC-compatible software with a direct API connection — you cannot manually enter figures on the HMRC website). HMRC's approved software list includes Xero, QuickBooks, Sage, FreeAgent, and many others. Bridging software allows businesses that keep records in spreadsheets to comply with the submission requirement without switching to full cloud accounting.

MTD for Income Tax: what is coming#

MTD for Income Tax Self Assessment (MTD ITSA) extends the digital requirements to self-employed individuals and landlords. From April 2026, those with business income above £50,000 must comply. From April 2027, the threshold drops to £30,000. The requirements: digital record-keeping for all business income and expenses, quarterly digital updates to HMRC (four updates per year replacing the single annual self-assessment return), and a final declaration by 31 January of the following year. This represents a significant change for sole traders and landlords — from one annual filing to four quarterly submissions plus a final declaration.

How to prepare for MTD right now#

The most effective preparation is adopting cloud accounting software now — regardless of which MTD phase applies to your current situation. Cloud accounting (Xero, QuickBooks, Sage, FreeAgent) maintains digital records automatically, connects directly to HMRC for all required filings, and is designed to comply with current and future MTD requirements. Switching to cloud accounting before an MTD deadline removes the time pressure of transitioning under compliance obligation. It also typically improves the quality and timeliness of your financial reporting beyond the MTD compliance benefit.

MTD and AskBiz: digital reporting for growth#

AskBiz connects to MTD-compatible accounting software — pulling your financial data into the business intelligence layer that enables the management reporting, KPI monitoring, and strategic analysis that cloud accounting data enables but accounting software does not perform. Your MTD-compliant accounting software maintains the tax record; AskBiz transforms that record into the business insights that drive decisions. This combination — compliant tax record-keeping plus AI-powered business intelligence from the same underlying data — represents the most efficient approach to both compliance and business performance management.