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Making Tax Digital

Updated: Nov 10, 2023

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What is Making Tax Digital

HMRC's Making Tax Digital plans involve getting small businesses and the self employed to complete tax records and returns digitally with the eventual aim of going completely paperless.

HMRC claim that that MTD is how they're making it "easier for individuals and businesses to get their tax right and keep on top of their affairs."

The latest tax gap figures show that many customers find it difficult to get their tax right the first time, with avoidable mistakes costing the Exchequer £8.5bn in 208/19.

Improved accuracy from digital records along with the automated help built into many popular accounting software products and the instant delivery to HMRC itself will reduce the amount of tax lost to avoidable errors.


The first phase of MTD came in 2019, Making Tax Digital for VAT, which involved keeping digital records and using accounting software to complete VAT tax returns for VAT registered businesses with a taxable turnover above the VAT threshold of £85,000.

From April 2022, all VAT-registered businesses will need to comply with Making Tax Digital for VAT.

And from April 2024, Self Assessment taxpayers will need to comply with Making Tax Digital for Income tax.

Making Tax Digital for VAT

From April 2022, VAT registered business will need to keep digital records and send digital VAT returns.

Digital records HMRC says you need to keep include:

  • your business name, address and VAT registration number

  • any VAT accounting schemes you use

  • the VAT on goods and services you supply, for example everything you sell, lease, transfer or hire out (supplies made)

  • the VAT on goods and services you receive, for example everything you buy, lease, rent or hire (supplies received)

  • any adjustments you make to a return

  • the ‘time of supply’ and ‘value of supply’ (value excluding VAT) for everything you buy and sell

  • the rate of VAT charged on goods and services you supply

  • reverse charge transactions - where you record the VAT on both the sale price and the purchase price of goods and services you buy

  • your total daily gross takings if you use a retail scheme

  • items you can reclaim VAT on if you use the Flat Rate Scheme

  • your total sales, and the VAT on those sales, if you trade in gold and use the Gold Accounting Scheme

You also need to keep digital copies of documents that cover multiple transactions made on behalf of your business by:

  • volunteers for charity fundraising

  • a third party business

  • employees for expenses in petty cash

You must use compatible software such as Xero to submit your returns which will pull the information directly from your digital records, which are preserved for up to six years.

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