Preparing for Making Tax Digital: What businesses need to know

Jan 15, 2025 | Business tax

Making Tax Digital (MTD) continues to affect how companies record and submit information to HMRC. The focus on digital processes has been intensifying for several years, and MTD is a core part of the government’s plan to modernise the tax system. It has progressed steadily from VAT to Income Tax Self Assessment (ITSA) to MTD IT. Many business owners in the digital, creative and media sectors are now adjusting workflows to prepare. The upcoming changes promise to influence day-to-day operations for sole traders, limited companies and freelancers alike.

Below is what you need to know about MTD and actions you can take to safeguard compliance. We have also included relevant figures that may affect self assessment and corporation tax calculations.

 

Initially, it all seems a little daunting

MTD requirements can feel daunting to many businesses, especially when juggling day-to-day demands. HMRC data shows that over 1.1 million businesses have already signed up for MTD for VAT. A wider rollout for Income Tax Self Assessment is coming soon. The shift to digital record-keeping and submissions is no longer optional for most businesses, particularly those with higher revenues. Missing deadlines or submitting inaccurate figures has the potential to lead to fines.

The numbers for 2024/25 add an extra layer of obligation. Income thresholds have been maintained at rates introduced in previous years. The personal allowance remains at £12,570. The higher rate threshold stands at £50,270. Self-employed individuals or landlords with business or property income above £50,000 will have to follow MTD IT rules from April 2026. Those with annual turnover above £85,000 have been following MTD for VAT for some time. A failure to adapt leads to stress, inefficiencies and potential penalties.

 

The possible challenges

Unexpected tasks often appear. Spreadsheets can become unwieldy, and manual calculations take up time that could be spent on creative work or client relationships. Errors sometimes creep in when receipts are lost or when data is entered inaccurately. HMRC is tightening its digital strategy, and guesswork is no longer acceptable. Extra admin hours or last-minute scrambles are enough to make any busy professional anxious.

Awareness does not always solve the day-to-day dilemmas of storing receipts and reconciling bank statements. Late filings carry a threat of fines, which depletes earnings. Interest charges on overdue amounts increase worries. A shortfall in proper record-keeping could also mean that R&D tax relief or other allowances are missed, particularly if there is confusion between personal and business expenses.

MTD IT has been delayed previously, which led some businesses to postpone action. That sense of delay might persist. The result is often poor preparedness when the final date arrives.

 

The way forward

Precise planning removes stress and supports timely submissions. This is where we can help. Our focus on the digital, creative and media sectors means we understand how these industries work. We also appreciate that any accountant’s advice must be tailored to the fast-changing nature of online and remote transactions.

Businesses preparing for the 2024/25 tax year should make sure their software, processes and teams are all set. This includes choosing a compatible MTD software platform that can track data in real time. Official HMRC documentation offers a list of approved software providers for MTD. Many cloud-based platforms automatically collate data from bank feeds, store receipts with OCR technology and create instant transaction reports. Some platforms integrate with CRM systems, payroll software and eCommerce tools.

Below are six steps to help you stay on track:

  1. Pick HMRC-approved software: It is essential to find a solution that fits your budget and supports MTD. Many cloud solutions offer straightforward setup, frequent updates, and integration with other applications.
  2. Keep business and personal transactions separate: Clear distinctions avoid confusion. Open a dedicated business bank account and keep separate records for personal spending.
  3. Check deadlines: MTD for VAT is mandatory for most VAT-registered businesses with turnover above £90,000. MTD IT starts from April 2026 for those with income above £50,000. Some individuals and organisations are already part of voluntary pilot schemes.
  4. Review allowance thresholds: The 2024/25 personal allowance is £12,570, and the higher rate threshold is £50,270. Additional rate tax applies to income above £125,140. Accurate record-keeping ensures you claim all applicable reliefs and do not slip into the wrong bracket unintentionally.
  5. Consider corporation tax and R&D claims: Companies undertaking R&D can claim enhanced relief, though rates and rules have undergone changes in recent years. Digital records make it easier to evidence qualifying expenditures, such as staffing costs, software licences and subcontractor fees.
  6. Set up reminders: Regular checks on monthly or quarterly data prevent unpleasant surprises when it is time to send returns. Frequent reviews highlight errors early.

 

How MTD affects self assessment

Individuals in the creative industries often have varied revenue streams, some of which may arise from outside the UK. Multiple revenue sources can complicate tax reporting. Digital tools that integrate foreign exchange modules can help track overseas transactions accurately. Bank feeds automatically import transaction data, reducing manual input.

The self assessment cycle for the 2024/25 tax year starts after 5 April 2025. MTD obligations typically require quarterly submission of summary information, followed by a final end-of-period statement. This lets HMRC see an overview of earnings throughout the year. The approach is intended to support a more up-to-date view of tax owed. Some businesses see this as an improvement over the traditional annual return since there is less chance of surprise bills.

 

Data security and compliance

Online platforms store a wealth of financial data, which must be protected. Solutions that comply with GDPR and maintain strong encryption standards are recommended. HMRC-approved software usually specifies the security protocols it follows. Accounting professionals can recommend system checks and procedures to protect sensitive records.

Reliable storage also means thorough backups. Hard drives can fail, so cloud-based tools with automatic backup features are a safer choice. Two-factor authentication (2FA) adds another barrier to potential breaches. These steps reduce the chance of losing valuable data and help businesses meet professional indemnity insurance requirements.

 

Enlisting support

We regularly guide creative and media professionals through MTD requirements. Our team simplifies record-keeping, minimises errors and helps identify relevant allowances. This ensures that you maximise deductions for software, home office expenses, equipment, travel and professional fees.

New clients sometimes worry about the cost of engaging an accountant. An accurate, streamlined approach can save money. Support can be scaled to your needs, from fully managed solutions to occasional advice on record-keeping. Our priority is to provide precise, clear, and accessible support, regardless of how large or small your operation is.

Take the next steps well before deadlines arrive. Being prepared in advance leaves you free to focus on meeting clients, developing new products or marketing your services. A sound strategy built around MTD can protect your time, bank balance and peace of mind.

 

Summing up

MTD reflects HMRC’s ongoing efforts to modernise the tax system and reduce errors. Businesses in the digital, creative and media sectors can benefit from the streamlined workflows that MTD-compliant software enables. Accurate records help maintain strong relationships with HMRC, improve forecasting and empower leaders to make informed decisions.

We are ready to support you through each stage of the MTD rollout. Our emphasis on digital solutions and familiarity with the creative sector makes our team a valuable partner. Early preparation, combined with the right resources, provides a better chance for smooth transitions. This approach is especially important as the new tax year takes shape.

Remember that personal allowances and higher rate thresholds have been frozen until at least 2028. Accurate calculations require the best digital tools and a thorough understanding of MTD rules. Please get in touch if you need help clarifying which steps are relevant to your business.

Need help with Making Tax Digital? Contact us today.

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