Understanding Making Tax Digital (MTD) and Its Impact on Your Small Business

Making Tax Digital (MTD)

MTD is a transformative initiative by HMRC aimed at modernising the tax system through digitalisation. This initiative aims to enhance the efficiency, effectiveness, and ease of tax administration, helping taxpayers to accurately manage their taxes.

What is Making Tax Digital (MTD)?

Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) is a measure that requires businesses and landlords with qualifying income to maintain digital records and update HMRC each quarter using compatible software. This initiative will be rolled out in two phases:

• From April 2026: For individuals with qualifying income over £50,000.
• From April 2027: For individuals with qualifying income over £30,000.

The main goal of MTD is to utilise digital technology to streamline tax procedures, reduce errors, and boost efficiency by cutting down the time dedicated to handling paperwork.

Who is Likely to be Affected?

MTD for ITSA will affect landlords and sole traders whose business or property income surpasses £30,000. These individuals will be required to switch to keeping digital records and providing quarterly updates to HMRC through compatible software.

What Does MTD Mean for Your Small Business?

For small businesses, MTD represents a significant shift in how tax records are maintained and reported. Here are some key implications:

• Digital Record-Keeping: Businesses will need to adopt digital tools to maintain accurate and up-to-date records of their income and expenses, like QuickBooks and Xero.
• Quarterly Updates: Instead of annual tax returns, businesses will be required to submit quarterly updates to HMRC, ensuring more timely and accurate tax reporting.
• Reduced Errors: Digital tools can help reduce the risk of unintentional errors in tax reporting, leading to more accurate tax submissions.
• Increased Productivity: Once appropriate systems are in place, by automating record-keeping and reporting processes, businesses can save time and focus more on their core activities.

How Can Naylor Accountancy Services Help?

Naylor Accountancy Services (NAS) is ideally suited to help businesses navigate the shift to MTD for ITSA. Here are ways on how NAS can provide support:

• Sign-Up & Set-up Assistance: NAS can help businesses sign up for MTD for ITSA, get everything set-up for you or your team and ensure your company meets all necessary requirements and deadlines.
• Software Solutions: NAS can guide businesses in selecting and maintaining the right software solutions for digital record-keeping and quarterly updates, enabling your business to be in the palm of your hand (via smartphone).
• Expert Tax Advice: With years of experience in providing tax advice to businesses of all sizes, Naylor Accountancy Services continues to offer invaluable support to businesses, helping them navigate the complexities of the new Making Tax Digital system alongside ongoing updates to UK taxes and financial regulations.
• Smooth Transition: NAS's expertise with businesses already using digital tools ensures they can provide the necessary support and guidance to make the transition to MTD as seamless and quick as possible.

To summarise, HMRC’s Making Tax Digital roll-out represents a major advancement in modernising the UK tax system, providing advantages to taxpayers…and to government. Although this transition might appear challenging for small businesses, with the appropriate assistance from Naylor Accountancy Services, it can be a seamless and advantageous process. Embrace this change and take advantage of the opportunities that digitalisation offers to improve your business's efficiency and accuracy in tax reporting.