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What business owners need to know about Making Tax Digital (MTD)

For many business owners, tax compliance is one of the least exciting, and often most stressful, aspects of running a company. But in recent years, Making Tax Digital (MTD) has transformed how businesses manage and report their taxes in the UK. It’s been changed to make things simpler and quicker. If you’re not fully up to speed yet, here’s what you need to know.

What is Making Tax Digital?

Making Tax Digital (MTD) is a government initiative designed to modernise the tax system. Instead of paper records or manual submissions, MTD requires businesses and individuals to keep digital records and submit tax returns using HMRC-approved software.

The aim is to make tax administration:

• More efficient
• Easier to get right
• Less error prone

Who does MTD apply to?

MTD is being introduced in stages, so the rules depend on your business type and turnover. Some will already be using MTD, but for many, it will be coming into force in the next couple of years. Here’s a quick breakdown:

• VAT-registered businesses (turnover above £85,000)
  Already required to keep digital records and file VAT returns via MTD-compatible software.
• VAT-registered businesses (voluntary, turnover under £85,000)
  From April 2022, most voluntarily registered businesses must also follow MTD rules.
• Self-employed businesses and landlords with income over £50,000
  From April 2026, they will need to comply with MTD for Income Tax Self-Assessment (ITSA).
• Self-employed and landlords with income over £30,000
  From April 2027, they will also be brought into MTD for ITSA.
• Corporation Tax
  MTD for Corporation Tax is planned but not expected before 2026.

What does MTD mean in practice?

If your business falls under MTD, you’ll need to:

1.Keep digital records

No more paper-based bookkeeping. You must record all transactions digitally using spreadsheets or accounting software.

Use MTD-compatible software

HMRC requires you to use approved software to submit returns, such as Opera 3 SE.

Submit returns directly to HMRC

Instead of logging into HMRC’s portal and typing figures manually, submissions go through your software.

Stay on top of deadlines

For VAT, deadlines remain the same (usually one month and seven days after the end of your VAT period). For ITSA, quarterly updates will be required.

Benefits of MTD

Although it may feel like more admin, MTD brings some key advantages:

• Fewer errors – digital submissions reduce mistakes common with manual entry.
• Time savings – automation speeds up record-keeping and reporting.
• Real-time visibility – accounting software lets you see your tax position at any time.
• Better business insights – digital tools help track cash flow, expenses, and profits more easily.

How to prepare your business

If you haven’t yet fully switched to MTD, here are some steps to take now:

Check your deadlines 

Find out when your business will be mandated.

Choose the right software

Look for HMRC-recognised platforms that fit your business needs. All our software here at Pegasus is HMRC-recognised and MTD compliant!

Update your bookkeeping processes

Make sure records are kept digitally from the start.

Train your staff 

Ensure everyone who handles accounts knows how to use the system.

Final thoughts

Making Tax Digital is more than just a compliance requirement—it’s part of the wider shift towards digital-first business management. By preparing early, investing in the right tools, and getting support where needed, business owners can not only stay compliant but also benefit from better insights and efficiency.

If you haven’t already, now’s the time to put MTD on your business radar.

For more information about how Pegasus solutions could work for your business and your MTD requirements, please contact us today for a discussion.

Posted On: October 02, 2025