Making Tax Digital (MTD): What Businesses Need to Prepare For

Table of Contents

Introduction

Do you run a small business? Do you pay taxes? Next, you must learn about Making Tax Digital, or MTD, as it is abbreviated.

MTD is a governmental new rule. It states that companies should maintain their taxation records in computers and not in paper. You should also submit your tax declaration online through special software.

Don’t worry! This does not sound convincing, as it is easy. Imagine it in the following way: you will not write in a notebook, but in a computer. You will not need to post letters, but will just press a button to transmit information.

In this blog, I would explain it all in simple terms. At the end you will know just what to do. Let’s start!

What is Making Tax Digital?

Making Tax Digital is such as changing old methods to new methods.

The Old Way:

Everything you wrote was in paper books.

You counted by means of a calculator.

You posted tax forms by mail

In some cases papers were lost or spoilt.

The New Way (MTD):

It is all typed on the computer or the phone.

All this is done automatically in software.

One time information is sent.

All information is stored securely on the Internet.

MTD is formed by the government to simplify taxation and minimize errors. Few errors arise when the computers are carrying out the math. When all is digitalized, nothing is lost in the mail. It is just like we would have ceased to write letters and instead wrote emails. It’s faster, easier, and safer.

Who Needs to Use MTD?

Not everyone needs MTD right now. Let me explain who does:

You MUST use MTD if:

You are registered on VAT (tax) on your business.
You make more than PS85,000 per year
VAT registration is after April 2019.

You DON’T need MTD yet if:

You’re just employed by someone (you have a boss)
Your business is very small (under £85,000 yearly)
You only do income tax (but this might change soon)

Important dates to remember:

VAT businesses: Already started (since 2019)
Income Tax Self-Assessment: Coming soon (check government website for your date)

Think of it like getting a driving license. Not everyone needs one, but if you drive a car, you must have it. If you’re registered for VAT, you must use MTD.

Why Should You Care About MTD?

You might be thinking: “Why can’t I just continue with paper?”

Here’s why MTD matters:

1. It’s the law If you don’t follow MTD rules, you can get fined. The government can charge you money as a penalty. Nobody wants that!

2. It saves you time After the initial setup, MTD actually makes your life easier. The software does calculations for you. You don’t need to add up numbers manually.

3. Fewer mistakes Computers are better at math than humans. When software calculates your taxes, you make fewer errors. Fewer errors mean fewer problems with the tax office.

4. Everything in one place All your records are stored safely. You can find any information in seconds. No more searching through boxes of old papers.

Imagine you have a toy box. The old way was throwing all toys randomly inside. The new way is organizing toys in separate sections. MTD is like organizing your business information neatly.

What Do You Need for MTD?

Getting ready for MTD is easier than you think. You need three main things:

1. A Computer or Smartphone

You don’t need an expensive computer. Any basic laptop, tablet, or smartphone works fine. Even if your device is a few years old, it will probably work.

If you can watch videos on YouTube or check Facebook, your device is good enough for MTD.

2. Internet Connection

You need internet to use MTD software and send information to the government. WiFi at home or mobile data on your phone both work perfectly.

Most MTD software works even with slow internet. You don’t need super-fast broadband.

3. MTD-Compatible Software

This is the most important part. You need special software approved by the government.

Think of it like apps on your phone. Just like you need WhatsApp to send messages to friends, you need MTD software to send tax information to the government.

Good news: Many software options are available. Some are even FREE for small businesses!

Popular MTD Software Options

Let me tell you about some popular software choices:

Free Options:

1. HMRC’s Free Software

Cost: Completely free
Good for: Very small businesses
Easy to use: Yes
Downside: Basic features only

2. QuickBooks (Free trial)

Cost: Free for 30 days, then paid
Good for: Trying before buying
Easy to use: Very user-friendly

Paid Options:

1. Xero

Cost: Around £12-30 per month
Good for: Small to medium businesses
Features: Lots of helpful tools
Easy to use: Yes, very popular

2. Sage

Cost: Around £10-25 per month
Good for: All business sizes
Features: Complete accounting tools
Easy to use: Takes time to learn but powerful

3. FreeAgent

Cost: Around £19 per month
Good for: Freelancers and self-employed
Features: Simple and clean
Easy to use: Very beginner-friendly

Choosing the right one:

Ask yourself these questions:

How big is my business?
What’s my budget?
Do I need just VAT or full accounting?
Do I need help from an accountant?

Most software offers free trials. Try 2-3 options before deciding. It’s like trying on shoes before buying them!

Step-by-Step: How to Prepare for MTD

Let me give you a simple plan. Follow these steps one by one:

Step 1: Check If You Need MTD (This Week)

Look at your business income
Check if you’re VAT registered
Find out your deadline

Step 2: Choose Your Software (Week 1-2)

Research 3-4 software options
Try free trials
Pick the one that feels easiest
Sign up and create an account

Step 3: Set Up Your Account (Week 2-3)

Enter your business details
Add your bank account information
Input your products or services
Set up customer information

Step 4: Start Recording Digitally (Week 3-4)

Enter every sale you make
Record every expense
Upload receipts (take photos with your phone!)
Let the software organize everything

Step 5: Connect to HMRC (Week 4)

Link your software to the government system
This is usually one button click
The software will guide you
Test that connection works

Step 6: Submit Your First Return (When Due)

Review your numbers
Click “submit” button
You’re done!

Pro tip: Start early! Don’t wait until the last minute. Give yourself at least one month to practice.

What Records Do You Need to Keep?

MTD requires you to keep certain information digitally. Here’s what you need:

Sales Information:

Who bought from you
What they bought
How much they paid
When they paid
VAT amount (if applicable)

Purchase Information:

What you bought for your business
Who you bought from
How much you spent
Receipts and invoices
VAT you paid

Important: Keep records for at least 6 years. Good software stores everything automatically, so you don’t need to worry.

Easy way to remember: If money comes in or goes out of your business, record it!

Common Mistakes to Avoid

Many business owners make these mistakes. Learn from them:

Mistake 1: Waiting Too Long

Don’t wait until the deadline! Start preparing now. Rushing causes stress and errors.

Solution: Start today, even if your deadline is months away.

Mistake 2: Choosing Wrong Software

Some people pick software that’s too complicated or doesn’t fit their needs.

Solution: Use free trials. Ask other business owners what they use.

Mistake 3: Not Keeping Digital Receipts

Some people still rely on paper receipts. These can get lost or fade.

Solution: Take photos of receipts with your phone. Upload them to your software immediately.

Mistake 4: Forgetting to Back Up

If something goes wrong with your computer, you could lose everything.

Solution: Use cloud-based software. This means your data is stored on the internet, not just your computer. It’s automatically backed up.

Mistake 5: Not Getting Help

Many people struggle alone instead of asking for help.

Solution: Contact your accountant, or call the HMRC helpline, or watch YouTube tutorials. Help is available!

How Much Does MTD Cost?

Let’s talk about money. Here’s what you might need to spend:

Software: £0 to £30 per month

Free options exist
Basic paid software: £10-15/month
Advanced software: £20-30/month

Accountant Help (Optional): £100-500 for setup

Not required, but helpful
They can set everything up for you
Worth it if you’re very busy

Training (Optional): £0-200

Free YouTube videos available
Online courses: £50-200
Usually not necessary for basic MTD

Total to start: Can be as low as £0 if you use free software and learn yourself!

My advice: Start with free software. If your business grows and you need more features, upgrade later.

Benefits You’ll Get from MTD

After the initial setup work, MTD actually helps you! Here’s how:

1. Save Time No more manual calculations. No more writing in books. Everything happens automatically.

2. Make Better Decisions You can see your business performance anytime. Check on your phone: Are you making profit? Are customers paying on time?

3. Reduce Stress No more panic before tax deadlines. Your information is always ready. Just click submit!

4. Look Professional Send professional invoices to customers. Everything looks neat and organized.

5. Sleep Better No worry about lost receipts or wrong calculations. Everything is recorded and saved safely.

One business owner told me: “I was scared of MTD at first. Now I can’t imagine going back to paper. It saves me hours every week!”

Getting Help with MTD

You don’t have to do this alone. Help is available:

1. HMRC Helpline

Phone number: 0300 200 3600
They explain MTD rules
Free service

2. Your Accountant

They can set up everything
They can train you
They can check your work

3. Software Support

Every software has help guides
Most have phone support
Many have live chat

4. YouTube Videos

Search “MTD tutorial”
Watch step-by-step guides
Completely free

5. Local Business Groups

Other business owners share experiences
Learn from their mistakes
Get recommendations

Don’t be shy! Everyone was a beginner once. Ask questions. It’s okay not to know everything.

What Happens If You Don’t Follow MTD?

Let’s be honest about this. If you ignore MTD, there are consequences:

Penalties:

Late submission: £200 fine
Very late: More fines added
Continued non-compliance: Could be £1000+

Other problems:

HMRC might investigate your business
You could face tax audits
Your stress levels will be very high
You might miss important deadlines

The good news: If you make an honest mistake, HMRC is usually understanding. Just communicate with them and fix the problem quickly.

Prevention is better than cure: It’s much easier to just follow the rules than deal with penalties later.

Frequently Asked Questions

Q: Is MTD very difficult? A: No! If you can use a smartphone, you can use MTD software. It’s designed to be simple.

Q: What if I’m not good with computers? A: Most MTD software is very user-friendly. Also, you can get help from family, friends, or an accountant.

Q: Can I still use my accountant? A: Yes! Many people still use accountants. The accountant can use MTD software for you.

Q: What if my internet stops working? A: Most software stores information on your device too. You can work offline and upload later when internet returns.

Q: Do I need to submit information every day? A: No! You record transactions regularly (like weekly), but submit to HMRC only quarterly or annually, depending on your situation.

Q: What if I make a mistake? A: You can correct mistakes. Most software lets you edit entries. If you already submitted, you can send corrections to HMRC.

Q: Is MTD very difficult? A: No! If you can use a smartphone, you can use MTD software. It’s designed to be simple.

Q: What if I’m not good with computers? A: Most MTD software is very user-friendly. Also, you can get help from family, friends, or an accountant.

Q: Can I still use my accountant? A: Yes! Many people still use accountants. The accountant can use MTD software for you.

Q: What if my internet stops working? A: Most software stores information on your device too. You can work offline and upload later when internet returns.

Q: Do I need to submit information every day? A: No! You record transactions regularly (like weekly), but submit to HMRC only quarterly or annually, depending on your situation.

Q: What if I make a mistake? A: You can correct mistakes. Most software lets you edit entries. If you already submitted, you can send corrections to HMRC.

Conclusion

Making Tax Digital might seem scary at first, but it’s really not that hard. Think of it as learning to ride a bicycle. The first time feels wobbly, but soon it becomes natural.

Remember these key points:

MTD means keeping tax records digitally on a computer
You need MTD-compatible software
Many free and affordable options exist
Start preparing early, don’t wait
Help is available when you need it
After setup, MTD actually makes life easier

Thousands of businesses have already made the switch. They were nervous too, but now they wonder why they didn’t start sooner.

You can do this! Take it one step at a time. Start today with just one small action. Check if you need MTD. That’s it. Tomorrow, take the next step.

Ready to take control of your business money? Contact Scottish Accountancy today for a free consultation.

📍 Visit us at: 176 Allison Street, Glasgow, United Kingdom

📞 Phone: +44 141 237 9960

💬 WhatsApp: +44 7385 883967

📧 Email: info@scottishaccountancyservices.co.uk

🌐 Official Website: scottishaccountancyservices.co.uk

Let us show you how professional accounting support can save you money, reduce stress, and help your business grow. Get in touch now to discuss your accounting needs.