Making Tax Digital is the hot topic in the accountancy world, which will see UK legislation change the way accounting records are kept and managed, and an enforced change into the digitalisation of recording tax data and submission.
What is Making Tax Digital?
Making Tax Digital is a government legislation which aims to make it easier and more efficient for individuals & companies to record and declare taxes to HMRC, by storing records ‘digitally’ and filing returns with HMRC using MTD-compliant software.
Making Tax Digital first arrived in April 2019 requiring VAT registered businesses to submit their VAT returns to HM Revenue and Customs through an MTD-compliant digital software, rather than the previous manual or excel based recording systems.
The government is extending the requirement to operate Making Tax Digital (MTD) to the 4.2m taxpayers with business and/or property income over £50,000, including landlords, sole traders and partnerships, for their Income Tax obligations from 6th April 2026. Those with an income between £30,000 and £50,000 will need to do this from April 2027.
These changes will apply to businesses, self-employed individuals and landlords who are chargeable to Income Tax.
What taxes are impacted by Making Tax Digital?
VAT – As of April 2022, all VAT registered businesses need to be MTD-compliant regardless of turnover, and file VAT returns with HMRC digitally.
Income Tax – From April 2026, all self-employed businesses and landlords with property income over £50,000 will need to be MTD-compliant from their first full accounting period starting on or after 6th April 2026, and from April 2027, this will apply to those with an income between £30,000 and £50,000. The government has also announced a review into the needs of smaller businesses, and particularly those under the £30,000 income threshold. Business owners will need to update HMRC on a quarterly basis using their digital records, along with a final end of period statement (EOPS) – a significant shift in the current annual obligations.
Corporation Tax – Currently MTD software is not mandatory for Corporation Tax (Expected between 2026 and 2030) however the government is giving businesses an opportunity to take part in an advance trial.
Am I ready for Making Tax Digital?
Business owners need to keep digital records using compatible software that connects to HMRC systems and allows you to store and update records, such as receipts and invoices. It must be able to:
- Keep and maintain digital records specified in the regulations
- Prepare VAT returns using these records
- Communicate with HMRC through a digital link
By updating HMRC on a quarterly basis, Making Tax Digital could give businesses the opportunity to pay tax more frequently, closer to a real-time basis which is considerably different to the current time scale of potentially nine months after the financial year has ended. Despite the extra hassle, it will give greater certainty about your tax liability throughout the year, and could impact upon cash flow forecasting and budgeting for business which Direct Peak can help plan with you.
What do I do next? – 3 Simple Steps
- Work out if Making Tax Digital will apply to you. If your income from any sole trader business(es) plus rental income from property is above £50,000, you’ll need to register for and comply with MTD for Income Tax from April 2026. If your business is trading on 5 April 2026, you’ll be required to comply with MTD for Income Tax from 6 April 2026 if your turnover exceeds the £50,000 threshold in the 2026/27 tax year.
- If you have more than one business, find out if you need to adjust your accounting periods. By aligning the accounting periods this will make the quarterly submissions much more efficient, as you will then be able to action them all in one go. This will also help minimise errors, as you are performing the tasks synonymously.
- Determine which software to look at to start your digitalisation process. It may be difficult to choose the correct software for your business, which is why at Direct Peak we only offer one software for our clients, Xero. We are Xero specialists and also offer all new clients free Xero training when onboarding with us, to help you move over to cloud accounting as smoothly and quickly as possible – so don’t be put-off by the thought of the hassle changing could cause.
Making Tax Digital (MTD) is a new initiative from HMRC that requires businesses and landlords to submit their taxes digitally. It applies to VAT, Income Tax and Corporation Tax, with varying deadlines in place for each one. Business owners need to prepare by digitally recording their business data through compatible software, such as Xero. Making the switch to digital processes will help business owners easily track, create and submit accurate records to HMRC.
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Frequently asked questions about hiring and working with an accountant
What is an accountant?
An accountant is a professional who specialises in keeping and analysing financial records. They assess, review and report on the financial wellbeing of individuals, companies or other organisations. Accountants typically use software to record transactions, such as purchases and sales, generate invoices and financial statements, track expenses, analyse data and provide accurate accounting advice.
What services can a UK accountant offer?
A UK accountant can offer a wide range of services including bookkeeping, taxation, audit and assurance, business advice and consultancy services. The type of service provided will depend on the specific qualifications held by the accountant as well as their experience and areas of expertise. For example, CPAs are able to provide detailed audits for businesses both small and large; ICAEW members can provide comprehensive tax advice for businesses; CIMA members can advise on how to best optimise organisational operations through budgeting; while experienced accountants can provide specific consultancy services such as strategic planning or performance management.
How much does an accountant cost in the UK?
This depends upon various factors including your location within the UK and also which services you require from an accountant – hourly rates vary widely between different professionals due to the level of experience as well as any additional specialisations they possess.
Furthermore there are many different types of accountancy fees ranging from fixed-fee packages offering basic services right up to complex charging structures used by large organisations – it is important, therefore, that you understand exactly what service you require before committing yourself financially.
As a general guide however, typical costs incurred when using an experienced accountant will range anywhere between £50-£150 per hour depending on their level of skill/expertise required for the completion of your project/task at hand. If you would like to request a personalised quote, please do not hesitate to get in touch with us at Direct Peak Accountants.
What type of work do accountants do?
Typically accountants provide advice regarding taxation, financial and investment planning as well as auditing services for companies within any industry including charity organisations or public sector bodies such as government departments or local authorities. Additionally, many accountants also offer general business consultancy services such as developing start-up business plans or advising on corporate acquisitions and mergers.
What are the advantages of hiring an accountant in the UK?
An accountant can help provide financial advice and guidance to businesses in the UK, saving them time and money by offering a range of services, such as bookkeeping, payroll administration and management accounts. Accountants can also help with more complex matters such as filing tax returns, providing advice on business structures and strategies and helping to develop cash flow forecasts. They can also provide invaluable advice on investments, mergers and acquisitions, estate planning and inheritance tax planning.
Direct Peak provides a dedicated business tax accountant, who will prepare your annual accounts and tax returns. They will be on hand to answer any tax queries you have.
Your business tax accountant will ensure that the company is set up in the most tax-efficient way and that you are claiming for all the correct expenses to maximise your earnings.