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MTD Compliance Guide


How to successfully manage your cash flow | Ashored

Introduction As of April 2022, HMRC’s Making Tax Digital for VAT will apply to all businesses, regardless of turnover. From April 2026 Making Tax Digital will apply to all unincorporated businesses, the self-employed and landlords with income greater than £50,000.


If you’re not already set up, don’t panic. Just follow these rules to make sure you’re on the right track..

This factsheet explains how to start complying with MTD.


1. Register for an online Government Gateway account

The Government Gateway lets you use many national and local online government services safely and securely. Once it’s set up you can use it to pay taxes, check your tax account status and receive updates and alerts from HMRC.


If you haven’t already created one, you can set up your account at www.gateway.gov.uk.

Make sure you have the following info at hand:

  • Your name

  • Date of birth

  • National Insurance number

  • Email address

You’ll be asked to create a password. Once the process is complete you’ll get a user ID, which you can use to access the services you want (such as MTD for VAT).


HMRC will send you an activation code in the post and you’ll only be able to progress to the next steps once you enter the code.


2. Find out when you need to make your first MTD submission

From April 2022, all VAT-registered businesses, regardless of their income, must follow Making Tax Digital rules for their VAT returns. This means using a MTD-functional compatible accounting software that connects directly to HMRC, pulling in digital records in real-time.


There are some exceptions. You won’t have to follow the MTD rules if:

  • Your business is run entirely by practising members of a religious society whose beliefs are incompatible with the regulation’s requirements (for instance, using computers is not allowed).

  • You are undergoing bankruptcy procedures.

  • You can’t easily use digital tools to keep your business records or submit your returns - for instance due to age, disability or remoteness of location.

From April 2026, all unincorporated businesses, the self-employed and landlords with income greater than £50,000 must follow Making Tax Digital rules for their ITSA returns. This means using a MTD-functional compatible accounting software that connects directly to HMRC, pulling in digital records in real-time.


There are some exceptions. You won’t have to follow the MTD rules if:

  • a person who is digitally excluded because of their religious beliefs or because they can't reasonably be expected to comply with MTD. Note: A partnership will be digitally excluded if all of the partners are digitally excluded;

  • the trustees of a charitable trust;

  • the trustees of an exempt unauthorised unit trust; and

  • a person in respect of an excluded activity, being: the underwriting business of a member of Lloyd's, holding shares in a Real Estate Investment Trust (REIT) and participating in an open-ended investment company. This extends to a partnership where all of the activities of the partnership are excluded activities.

3. Decide if you need an accountant or bookkeeper

Accountants and bookkeepers are often just seen by business owners as a means to an end - a necessary step to make sure all tax obligations are met. But a good relationship with an accounting professional can help your business grow.


Here some questions you can ask yourself to help decide if you need an accountant or bookkeeper and, if so, which one might be right for you:

  • Do they have knowledge about my industry that can help me navigate complicated tax laws and tax deductibles?

  • Will I benefit from the additional services an accounting professional can bring (e.g. business insights and cashflow solutions)?

  • Would I rather concentrate on the business side of things or the finances?

4. Decide how you’ll digitally record transactions

HMRC’s MTD rules state that all VAT registered businesses must “keep and preserve” their income and outgoings within “functional compatible software”. This means you need to:

  • Record and store your financial records using software or apps

  • Be able to send this financial data to HMRC using HMRC-recognised software or apps (in technical language, software that can link via HMRC’s API)

It’s possible to use different software to do these two things. And there’s also what’s called "bridging software", which allows you to “bridge” programmes like Excel or Google Sheets - which are not MTD compatible - with HMRC’s platform.


5. Practice makes perfect

Learning a new process can seem daunting, but don’t worry: submitting your quarterly returns through software will soon become second nature. There are lots of advantages to managing your finances this way.

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Contact Ashored for help and support with Making Tax Digital.

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