If you work with self-employed clients, landlords, or small businesses, understanding these changes can help you stay ahead and offer valuable support.
Here’s a simple, clear guide to MTD for accountants in 2025 and what to expect in the coming years.
What is Making Tax Digital (MTD)?
MTD is a government initiative aimed at modernising the UK tax system by requiring businesses and individuals to keep digital records and submit tax information electronically using approved software. The goal is to reduce errors, improve accuracy, and make the tax filing process more efficient.
- MTD started with VAT in 2019 and is now expanding to cover income tax self-assessment.
- Sole traders and landlords with income above set thresholds must use digital tools to report tax information quarterly.
- The phased rollout means the rules affect more taxpayers each year, with the latest requirements applying from April 2026 onward.
Key Dates and Thresholds for Accountants
For accountants advising clients, it’s important to understand the timeline and thresholds for MTD compliance:
- April 2026: Mandate begins for sole traders and landlords with gross income over £50,000.
- April 2027: Threshold lowers to £30,000, expanding the number of affected clients.
- April 2028: Further reduction to £20,000, including many small businesses and landlords.
- Clients with income below these thresholds are not immediately affected but could be in future expansions.
How MTD Changes Accounting Practices
MTD moves the focus from annual tax returns to ongoing management of tax records. This affects how accountants deliver services:
- Quarterly Updates: Clients will submit income and expense updates four times a year instead of only once annually.
- Digital Records: Paper-based records are no longer enough; data must be stored digitally using compatible software.
- Real-Time Insights: Accountants can access up-to-date client information, allowing for more accurate advice.
- Compliance Checks: Software helps catch errors early, reducing penalties and improving client confidence.
Benefits of MTD for Accountants
Though it involves changes, MTD offers several advantages that accountants can leverage:
- Better Client Engagement: With ongoing data sharing, accountants stay involved throughout the year, not just at tax time.
- Improved Accuracy: Digital systems reduce mistakes and provide clearer, error-free client records.
- Time Savings: Automated processes mean less manual work, freeing up time for strategic advisory roles.
- New Services: Accountants can offer value-added services like financial planning based on richer, timely data.
- Competitive Edge: Embracing MTD positions firms as modern and trustworthy, attracting digitally minded clients.
Smooth Transition Tips for Accountants
To support your clients and your practice with MTD, consider these practical steps:
- Start early by encouraging clients to organise their financial records digitally.
- Choose MTD-compatible software that fits your clients’ needs and your workflow.
- Educate clients about quarterly reporting to avoid last-minute surprises.
- Use digital tools for seamless collaboration and quick communication.
- Keep up with HMRC updates and guidelines to ensure full compliance.
Common Challenges and How to Manage Them
Accountants may face some challenges as MTD becomes the norm, but they are manageable with the right approach:
- Clients unfamiliar with digital systems may need training or extra support.
- Transitioning from manual to digital record-keeping can cause initial delays.
- Ensuring security of digital data is crucial to protect privacy and maintain trust.
- Staying on top of frequent submissions requires organisation and reminders.
Looking Ahead: What’s Next for MTD?
The government plans further expansions and refinements in the coming years, aiming for a fully digital tax system. Accountants can expect:
- Ongoing lowering of income thresholds, drawing more clients into the MTD regime.
- Updates to software requirements and reporting formats.
- Continued emphasis on digital links between various financial records.
- Greater integration between tax, accounting, and business management tools.
Staying informed and adaptable will help accountants thrive as these changes unfold.