The Ultimate Guide to Making Tax Digital (MTD) 2023
All you need to know about the biggest change to tax returns in a generation!
If, like us, you’re obsessed with keeping up with the latest news and regulatory changes from HMRC, you’ll know all about Making Tax Digital (MTD) and be preparing yourself for this seismic change.
Of course, if you’re one of the 99% of people who would rather not think about tax, you may be wondering what all the fuss is about, whether you are affected, and what you need to do to prepare.
But fear not! Our tax nerds love an opportunity to make confusing tax regulations easier to follow so you can be up to speed with what you need to know about Making Tax Digital as quickly as possible.
APARI’s MTD software was one of the first to be approved by HMRC for use with MTD, so we know how it all works. Across the course of this page, we are going to explore everything that you need to know about Making Tax Digital and how it affects what you do on a day-to-day basis.
What is Making Tax Digital?
The new Making Tax Digital regulations are designed to make calculating tax easier and more accurate through the use of digital software. It’s been a requirement for all VAT registered businesses since April 2022. At some point in the future, it will also be applied to Corporation Tax.
APARI is focused on Making Tax Digital for Income Tax. This is the biggest change to tax returns in a generation, affecting millions of people like you (and me!).
What is Making Tax Digital for Income Tax?
Making Tax Digital for Income Tax is the new way to approach your tax affairs - moving from an annual tax return to more frequent submissions.
Note - you may also see it referred to as MTD for Income Tax Self Assessment (ITSA), or even MTD for Landlords and MTD for the Self-Employed.
To comply with MTD for Income Tax, landlords, the self-employed, sole traders and tradespeople will need to use online software to record business income and expenses in order to submit a summary every quarter.
At the end of the year, you need to submit any other income - for example from employment - and finalise your taxes. If you choose good software, it will let you to use information that HMRC already hold - like employment income or CIS deductions - and reduce your admin.
To be clear, Making Tax Digital is not doing anything to change how much tax you need to pay or when. In fact, you'll get regular estimates of your tax bill to help you manage your finances.
So the main changes are:
You will need to use MTD-ready software
That software will keep digital records for your business or rental properties
You need to send a summary to HMRC every 3 months
Who does Making Tax Digital apply to and when?
In HMRC talk:
You must meet the Making Tax Digital for Income Tax requirements from 6 April 2026, if all of the following apply:
you are registered for Self Assessment (find out more about registering and sending a Self Assessment tax return)
you get income from self-employment or property, or both
your total qualifying income is more than £50,000
You must meet the Making Tax Digital for Income Tax requirements from 6 April 2027, if all of the following apply:
you are registered for Self Assessment
you get income from self-employment or property, or both
your total qualifying income is more than £30,000
In everyday human speech however, it can be simplified. Making Tax Digital for Income Tax is for UK businesses and landlords, who submit a Self Assessment tax return. After you submit your tax return for the 2024-25 tax year, HMRC will tell you when you need to join the MTD system.
If you submit a Self Assessment tax return but don’t have business or property income, MTD for Income Tax doesn’t affect you (yet).
How does Making Tax Digital software work?
The new Making Tax Digital rules require landlords and the self-employed to submit their income and expenses directly to HMRC via compatible tax software, such as APARI.
In addition to this information about your business or rental properties, you still need to submit all of the other information that currently goes into your annual Self Assessment Tax Return, such as employment income, pension income, savings interest, charitable giving etc..
Each piece of information needs to be correctly integrated into HMRC’s systems, so it is recorded in the right place. Each piece of information, therefore, needs its own connector to link HMRC’s systems with MTD software. These connectors are known as APIs and HMRC is building them one by one. When they are released, tax software developers, like APARI, integrate them into our systems in order to make life easier for you to submit everything you need to.
If you do everything through your MTD software, you won’t need to submit a separate Self Assessment tax return.
What are the Making Tax Digital deadlines?
Instead of an annual tax return that covers the previous year, you’ll use your MTD-ready software to submit information about your business, self-employed, or property activity in the current year.
All landlords and most self-employed people have an accounting period that starts on 6 April. If you join MTD for the 2023-24 tax year, you’ll have to:
Use software to record and submit your business and/or property income between 6 April 2023 and 5 April 2024;
Use software to finalise your business and/or property income between 6 April 2024 and 31 January 2025;
Submit any non-business information and finalise your overall tax affairs by 31 January 2025. You can choose to do this using APARI or using the HMRC website.
We have a wealth of additional information you may find interesting around this topic. Head to our APARI Community for more information about Making Tax Digital for Income Tax.
Hasn't Making Tax Digital for Income Tax been delayed?
Following an announcement made by HMRC on 19 December 2022, the mandatory start date of Making Tax Digital for Income Tax (MTD) was pushed back to April 2026.
So what does this delay mean for Taxpayers?
APARI is already MTD ready, so really this extension just gives our existing users more time to become super efficient at their digital record keeping!
The delay of MTD means that HMRC has time to recruit even more users onto its pilot scheme, ensuring that they fix any problems or issues that may pop up with Making Tax Digital for Income Tax.
How to comply with Making Tax Digital rules?
At APARI, we think the best first step towards Making Tax Digital and MTD compliance is to start using software to keep your business records. Ignoring the tax side of things, this will give you better information about your profit vs your regular expenses. You can get started with an APARI account today.
Once you’re familiar with digital record keeping, you may be able to voluntarily sign up to use MTD. Don’t worry if you change your mind - you can still submit a tax return as normal using APARI.
Everyone that uses MTD will need to choose compatible software, which they connect with their HMRC account. APARI’s MTD software is already listed on HMRC’s software selection tool so you can rest easy knowing we are fully recognised by HMRC.
Once connected, the software will then tell you when you need to submit information, such as your quarterly return.
What is the process for Making Tax Digital?
At APARI, we can share what we've learned from being one of the only software products to have taken real taxpayers through the full MTD process over the past couple of years. Here’s the process of Making Tax Digital, using APARI:
Step 1: Keep digital records
You can add individual income and expenses, upload a spreadsheet or add bank transactions automatically. The software will then guide you to categorise the income and expenses. You can also attach receipts and documents to transactions and keep things in one place using our ‘Snap & Store’ feature.
Step 2: Sign up for MTD
HMRC has asked APARI to control who joins the pilot. You can tell us if you’re interested by completing this short survey.
Step 3: Receive reminders about key dates
Our software will remind you about your quarterly and annual tax submissions. We will also remind you about other key dates, such as insurance renewals and tenancy periods.
Step 4: Submit your tax information to HMRC directly from APARI
Our software automatically prepares the quarterly summaries that HMRC needs for MTD. After a review of the information, all you need to do is click submit. Our software then connects directly to HMRC and submits all the information automatically. You’ll get immediate confirmation that HMRC are happy.
Do you want to know more about the Making Tax Digital process? We’ve created a whole blog on our APARI Community.
Benefits of Making Tax Digital
Completing five tax submissions a year may sound like a hassle but it will help spread the workload over the year. Instead of the January panic that many people experience, you’ll just have to upload your transactions, check the details, and click submit once every three months. Your annual summary shouldn't take any longer to calculate than your current self assessment tax return does.
Head to our blog to find out more about how Making Tax Digital and the MTD experience compares to the standard self assessment tax return.
There is a huge benefit to MTD that will be felt by everyone moving forward. Since you're already using software to collate your accounts information, calculate your tax and submit to HMRC, you can review whether and how you use an accountant.
This has the potential to save you a fortune as accountancy fees go up in response to MTD. Of course, an accountant may still be useful in some circumstances - such as getting help and advice about tax planning - but you can use them when you need to, and pay for a specific service rather than a large annual fee.
By regularly updating your income and expenses, you’ll also gain a real-time estimate of your final tax bill, helping you save the right amount of money to pay your tax bill. This means that, thanks to MTD and software such as APARI, there will be no more nasty surprises when you come to file your return!
How to solve the challenges of Making Tax Digital
The MTD regulation that lies at the heart of these challenges does require Self Assessment taxpayers to do tax differently. Instead of an annual tax return covering your income in the previous year, you’ll be sending an update every three months about your income and expenses in the current year. When you first join Making Tax Digital, you'll face the transition between these two systems.
Ultimately, this is a one- time transition. After that the quarterly updates will become quicker and easier over time and with practice, and will give you a tax liability estimate in real-time so you can save the right amount of money to pay your tax bill.
Have any questions or problems regarding MTD that we haven't covered so far? (Guess we can't call it the Ultimate Guide for MTD then, right? ). Just let us know what's on your mind, we are happy to help!
Managing the transition to Making Tax Digital
The best way to make the transition to Making Tax Digital easier is to start digitising your records now. If you are used to compiling your accounts, transactions, receipts etc in a digital format, it will be relatively easy to modify those records into a format that will work for MTD.
If you keep these digital records in an APARI account, you can join MTD when you’re ready to go. Until then, you can continue submitting a normal Self Assessment tax return all through APARI!
The great thing about using this method is that, when you are ready to transition to MTD, you’ll already be used to digital record keeping and can instantly switch over to MTD-compatible tax filing. It will be a smooth and easy transition rather than a complicated, confusing, messy and expensive process.
Joining the MTD pilot
HMRC has asked APARI to control who joins the pilot. You can tell us if you’re interested by completing this short survey.
You need to be a landlord or self-employed, and HMRC will also check your wider circumstances to see if they are supported by the pilot before letting you join.
To check whether you are currently eligible, HMRC look at what you reported on your most recent tax return. If they see you reported overseas income last year, for example, they will assume you need to this year and could potentially block you from signing up for the time being.
Another reason you may be blocked for now is that you are new to self employment, are not a resident of the UK, or you claimed a grant under the Self Employed Income Support Scheme. There are a mix of explanations for this, from the technical to the administrative.
APARI are actively working with HMRC to allow more landlords and self-employed people to sign up for MTD.
Should I sign up to Making Tax Digital right now?
Lots of APARI users want to join Making Tax Digital now to get familiar with the new system. You may also want the benefits of real-time tax estimates and a tax return that's pre-populated with the data that HMRC already hold, like employment income, pension income or CIS deductions. For more information about eligibility for MTD, click here.
HMRC currently don't have the capacity to allow everybody to join MTD all at once - so instead they are rolling out in phases.
APARI can use our influence with HMRC to help our users to get early access to MTD. You’ll become one of our volunteer test users and have the glory of being a pioneer in the rollout of MTD. Not all heroes wear capes.
To find out if this is for you, take our short survey here.
Or you start by using our software to keep your business and/or property records digitally. As soon as you’re eligible to join Making Tax Digital, we’ll let you know.
How software helps you ease the Making Tax Digital transition
With Making Tax Digital, calculating your tax position and then submitting it to HMRC, will not just be something that you or your accountant “might” do – but it will be a “must” with digital record keeping becoming a legal requirement for MTD taxpayers.
This can sound like a daunting task to anyone who has never used software! But signing up to a software early (especially a software like APARI) can be the key to a simple and pain free transition to MTD.
With APARI you are able to upload your bank statements directly to the software, and allocate your business transactions directly to Making Tax Digital approved categories. You also have the ability to individually upload any cash or missed transactions. This allocation of transactions is the minimum requirement for MTD - as long as you upload these transactions and submit at least once a quarter, you are Making Tax Digital compliant.
Want to know more about how our AI can help you with MTD? Check out our blog post with more information on the issue.
need to know facts about Making Tax Digital for VAT
What is Making Tax Digital for VAT?
MTD for VAT was HMRC’s first roll out of the Making Tax Digital Plan, which will eventually expand to all major tax categories.
All VAT registered businesses must now comply with the MTD rules. The main requirements are to file VAT returns using software and to keep records digitally. The biggest change for most was the transition to digital record keeping!
What do I have to do for Making Tax Digital for VAT?
Once your turnover passes the VAT threshold (currently £85k), you will need to register for VAT. Once registered you will then have to use a HMRC recommended, MTD for VAT compatible software to keep your records and make quarterly submissions.
What records do I need to keep digitally?
There are a few types of records that you need to keep digitally for Making Tax Digital. Firstly you need your company information - including your business name and address, your VAT registration number and the details of any VAT schemes you are registered for (i.e flat rate).
For every outgoing sales invoice, you will need to have the date and value of the sale, along with the VAT rate charged.
For every purchase invoice you will need to show the state of purchase/invoice, the value of the purchase (including any zero rated, or exempt purchases) and the amount of VAT you will be reclaiming.
You will also need to keep the details of your VAT returns along with details of any adjustments.
Will Making Tax Digital for VAT affect me if I’m a sole trader/ partnership?
With MTD for VAT, incorporation makes little difference - the threshold for VAT is the same across sole traders, partnerships, limited companies etc, and it is turnover that establishes your need to register for VAT.
Will Making Tax Digital extend to taxes other than VAT and Income Tax?
Yes. Eventually Corporation Tax will be submitted via MTD.
Where can I find more information?
You can find further information on the HMRC website. Here are some useful links:
- HMRC's Overview of Making Tax Digital
- Making Tax Digital for Income Tax