Making Tax Digital for dummies

Time to sign up

Has your business signed up for Making Tax Digital? Or are you one of the 1.17 million businesses yet to sign up? If you haven’t yet taken this important step, then this should be at the very top of your to-do list - especially if you’re VAT registered. Here’s why.

HMRC urges all businesses to sign up for MTD – soon

What is Making Tax Digital (MTD)?

Let’s answer this basic question first. Where better than to hear the answer from the horse’s mouth – from the HMRC website: “Making Tax Digital is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs.”

HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world.
Making Tax Digital is making fundamental changes to the way the tax system works – transforming tax administration so that it is:
– more effective
– more efficient
– easier for taxpayers to get their tax right”

Does MTD apply to my business?

Almost certainly.  HMRC is making a gradual rollout of Making Tax Digital over two phases.

Is your business turnover more than £85,000 (the current VAT threshold)?
Then the key date for you is April 1st, 2019. That’s when phase 1 kicks in.  This is all about your VAT returns.

If your business turnover is less than £85,000 and you’re not registered for VAT, then phase 2 of MTD will apply to you.  This starts, at the earliest, on April 1st, 2020 and will apply to all businesses, regardless of size. This phase relates to your corporation or income tax returns. Right now, we’re still waiting to hear the full details.

There are one or two rare exceptions to these criteria.  If you’re unsure, then call us on 020 3008 7820.

When should I sign up to MTD?


Already, 30,000 businesses have signed up to the new process but that leaves 1.17m still to take action. HMRC is urging all to make signing up a top priority.  They have written to every applicable business, supplying information on what to do, how to do it and when.

Are you a VAT-registered business?

From April 1st 2019, almost all such businesses will have to keep their records digitally. You’ll need to submit your VAT return using Making Tax Digital compatible software. There’s no great panic. You won’t have to file your first digital VAT return July 1st.

If I fail to do this, what will the penalty be?

In the first year of MTD, HMRC has stated that it will take a ‘soft penalty approach’. For the first 12 months (until April 2020), your business will be able to use a ‘cut and paste’ approach. After this date, you’ll be legally obliged to use digital links.

This will give you time to introduce a system of digital links between all parts of your accounting software.

Are there any exemptions? Do I have to join the scheme?

There are – but time is fast running out.

If your VAT quarter starts on April 1st, you need to apply now. If you do make a claim for exemption and find it’s rejected, there will be little or no opportunity for you to appeal the decision.

There are groups of people who may well be granted an exemption. For example, are you ‘digitally excluded’? This could be due to a disability or age. Or maybe you work from a remote location. In these instances and a few others, HMRC might grant you a permanent exemption.

To be exempt, you have to show there are sound reasons that you’re unable to comply with the MTD requirements. The best thing to do is to call the HMRC VAT helpline (0300 200 3700). Or, write to HMRC’s VAT Written Enquiries Team and explain the reasons for your request.

What should I be doing to prepare for MTD?

– Check whether your business is included in the scheme
– If you already use accounting software, check to make sure your software is compatible – find software for Making Tax Digital listed on HMRC website.
– If you don’t currently use accounting software, then speak to your accountant or bookkeeper to advise you as to the most appropriate software. You might also need help from them with training on how to use it.

Ask the experts

There really is nothing to fear from MTD. In this digital age, it really does make sense to use the best of modern technology to run the accounting side of our businesses. As ever with these issues, the best time to prepare yourself for the changes is now. Simply call us. We’re familiar with all MTD matters and perfectly placed to guide through the compliance process.

We’re here to help.


This legal information is not the same as legal advice and you may not rely on our post as a recommendation of any particular legal understanding. Please, consult an attorney if you’d like to get advice on your interpretation of this article.

Leave a Reply

This website or its third-party tools use cookies, which are necessary for its functioning and required to achieve the purposes illustrated in the cookie policy. If you want to learn more or withdraw your consent to all or some of the cookies, please refer to the cookie policy. You accept the use of cookies by closing or dismissing this banner, by scrolling this page, by clicking a link or button or by continuing to browse otherwise.