Don’t worry – at the Federation of Small Businesses, we're supporting small businesses and the self-employed to get to grips with new Making Tax Digital rules and stay compliant through our FSB Making Tax Digital app.
What is Making Tax Digital?
Making Tax Digital (MTD) aims to make it easier and more efficient for businesses and individuals to record and declare tax to HMRC. Under the new rules, HMRC legally requires eligible businesses to record transactions digitally and submit returns to HMRC using Making Tax Digital compatible software.
The new rules don't change your normal VAT return deadlines or the information you need to send. You can check when your next return is due on your online VAT account.
What information must be kept digitally?
MTD may affect your bookkeeping processes and the way your business stores information. You must keep electronic records and digital copies of transactions. You can find further guidance on what records you must keep digitally on HMRC’s website.
I already keep digital records. What’s different about Making Tax Digital for VAT?
All VAT-registered businesses must maintain records and accounts, and many are already keeping these digitally. With MTD, the significant change is that you must use Making Tax Digital software to submit your VAT return to HMRC.
Here is what you need to do to comply with the new legislation so you're not caught out by fines for non-compliance.
Make a plan
It’s time to get clear on your plan of action. If you have an accountant who looks after your bookkeeping, speak to them to understand what the change will mean. For example, you may need to set up a process for sharing digital records and information.
If you do your own accounts using spreadsheets, manual records, or paper-based bookkeeping - or if you’re already keeping your accounts digitally - you must now use MTD compatible software to submit your information to the new HMRC MTD portal.
What is compatible software?
You’ll need to keep your digital records using compatible VAT record-keeping software that connects to HMRC systems and allows you to store and update records like receipts and VAT invoices digitally.
It must be able to:
- keep and maintain digital records specified in the regulations
- prepare VAT returns using these records
- communicate with HMRC through a digital link
Some MTD solutions contain a bridging feature that lets you digitally link data in a spreadsheet to HMRC’s system.
Selecting MTD compatible software
You need to get compatible software in place before you register for the MTD service. It won’t be provided by HMRC, so you’ll need to upgrade existing software or source new software.
The FSB Making Tax Digital app is recognised by HMRC and it's a cost-effective solution for small businesses. Users can submit their business accounts directly from the app to the online MTD portal. It allows you to:
- Upload your VAT spreadsheet using the simple bridging feature.
- Or you can use the record-keeping features to create customer invoices and track your expenses.
Can I still use spreadsheets?
Yes. If you currently use spreadsheets to calculate your VAT submission, you can use the simple bridging feature that lets you upload and submit your VAT spreadsheet to complete your MTD VAT submission. This is the simplest and most cost-effective way to tick the MTD VAT compliance box.
Alternatively, you can use the record-keeping features to create invoices and track your expenses. This will require a little more effort to set up but is very easy to use thereafter.
Here are the four simple steps that you need to take to comply with MTD in just 10 minutes.
1. Register for Making Tax Digital
You will not be enrolled for MTD VAT automatically.
This process instructs HMRC to copy your existing VAT account from the old HMRC computer system over to the new MTD computer system. Once you complete this step, it can take HMRC up to 72 hours to copy your account across. This is a one-off process and takes approximately 3 minutes to complete.
To sign up, you’ll need to have the following to hand:
- Your business email address
- Government Gateway user ID and password (if you don’t have one, you can create one here)
- VAT registration number
- Latest VAT return
2. Sign up for an MTD compatible app
The FSB Making Tax Digital app will ask you to select if you wish to use the easy-to-use bridging feature to load your existing VAT spreadsheet. Alternatively, you can use our record-keeping features to create invoices and track your expenses. This is a one-off process and takes approximately 3 minutes to complete.
3. Connect the app to your MTD account
The FSB Making Tax Digital App will prompt you to enter your VAT details and it will guide you through the process of connecting the app to your HMRC MTD account. This is a one-off process and takes approximately 2 minutes to complete. This step can only be completed after you have registered for Making Tax Digital and HMRC has copied your VAT account across to the new MTD system.
4. Submit your MTD VAT return
The FSB Making Tax Digital App will download and display your latest VAT information including your quarterly submissions. You can make a submission by loading your VAT spreadsheet to populate the 9-box VAT form. Alternatively, the app will populate the 9-box VAT form if you have entered invoices and expenses into our app. This takes approximately 2 minutes to complete.
Is Making Tax Digital only for VAT?
No. From April 2026, self-employed individuals and landlords with an income of more than £50,000 will be required to keep digital records and provide quarterly updates on their income and expenditure to HMRC through MTD-compatible software. Those with an income of between £30,000 and £50,000 will need to do this from April 2027.
HMRC has a webinar you can watch on-demand to learn more about the process and how you can sign up for the Making Tax Digital for Income Tax Self-Assessment pilot. HMRC also has useful resources, videos, and webinars aimed at business owners so you can learn more about how you’ll be affected and the steps you need to take.