Making Tax Digital is HMRC’s programme to digitise the UK tax system. Depending on your business type and turnover, you may already be required to comply, or you may have it coming. This checklist helps you assess whether your business is ready and what to do if it is not.
Step 1: Establish Which MTD Requirements Apply to You
MTD currently covers two main areas with active mandates:
MTD for VAT: Applies to all VAT-registered businesses. If you are VAT-registered, this requirement is already in effect. You must keep digital records and submit VAT returns through MTD-compatible software.
MTD for Income Tax (MTD ITSA): Applies to self-employed individuals and landlords with total gross income above certain thresholds. The roll-out is phased, with higher earners coming into scope first. Check the current thresholds on gov.uk to confirm whether and when you come into scope.
MTD for Corporation Tax is still in development and has not yet been mandated.
Action: Identify which MTD requirements apply to your business now, and which are coming in future years.
Step 2: Check Whether You Are Using MTD-Compatible Software
The most common reason businesses are not MTD-ready is that they are using software that does not meet HMRC requirements.
- If you are VAT-registered and submitting VAT returns manually through the HMRC portal, you are not compliant
- If you are using a spreadsheet without bridging software, you are not compliant for VAT
- If you are using accounting software, check the HMRC-approved software list on gov.uk to confirm it is recognised
Action: Check the HMRC-approved software list and confirm your current software is listed. If not, see our guide on MTD-compatible accounting software.
Step 3: Check That Your Digital Records Meet the Requirements
MTD requires that certain information is kept in digital format. For VAT, this means the details of each supply must be held digitally. For Income Tax, it means digital records of business income and expenses.
Paper records alone do not comply. Records must be in a digital format and there must be a digital link with no manual re-keying between your records and the submission to HMRC.
Action: Review how you currently keep records. If you are entering transactions into accounting software, your records are likely digital. If you are keeping paper books and summarising them into a spreadsheet, the process needs review.
Step 4: Check That Your VAT Submissions Use a Digital Link
If you are using accounting software that submits directly to HMRC, this is handled automatically. If you are using a spreadsheet with bridging software, confirm the bridging tool is on the HMRC-approved list and that the data flows digitally from your records to the bridging tool without manual re-keying.
Action: Trace your VAT return process from first entry to submission and confirm there is no point at which figures are manually copied between systems.
Step 5: Confirm Your Software Is Set Up Correctly
It is not enough to have MTD-compatible software. It needs to be correctly authorised and configured to submit to HMRC on your behalf.
Within your accounting software, there is usually a specific MTD authorisation process that connects the software to your Government Gateway account. If this has not been done, submissions will fail even if the software is compatible.
Action: Log in to your accounting software and check whether MTD authorisation is set up. The software will typically show a connection status or prompt you to authorise if it has not been done.
Step 6: Plan for MTD for Income Tax If It Applies to You
If you are self-employed or a landlord and your gross income is approaching or above the thresholds for MTD for Income Tax, start planning now. This means:
- Choosing accounting or bookkeeping software that supports MTD for Income Tax
- Getting your record-keeping into a digital format before you are required to file quarterly
- Understanding the quarterly submission deadlines and how they fit into your workflow
For full details of what MTD for Income Tax requires, see our guide on Making Tax Digital for Income Tax.
Step 7: Involve Your Accountant
If you use an accountant, they should be aware of your MTD status and should have already raised any compliance issues with you. If you are unsure about your position, your accountant is the best first call.
Accountants can be authorised agents for MTD submissions, meaning they can submit on your behalf. However, the records still need to be kept digitally in MTD-compatible software.
What to Do If You Are Not Ready
If this checklist has identified gaps, the priority depends on which requirement is involved:
- Not compliant for MTD for VAT: this is urgent. Find MTD-compatible software and migrate as quickly as possible
- Not yet in scope for MTD for Income Tax but approaching the threshold: start moving to compatible software now to avoid a rushed migration later
Our guide on how to choose accounting software for your UK small business is a good starting point, and our guide on how to switch accounting software without losing your data covers the migration process.
