Making Tax Digital: What UK Companies Need to Prepare For

MTD for VAT: Current Requirements

Since April 2022, MTD for VAT has applied to all VAT-registered businesses, regardless of turnover. You must keep digital VAT records and submit VAT returns using HMRC-recognised software via an Application Programming Interface (API). Copying figures manually into HMRC's online portal is no longer permitted.

Compatible software includes most mainstream accounting packages (Xero, QuickBooks, Sage, FreeAgent, and others) as well as bridging software that can connect a spreadsheet to the HMRC API. Your accountant or software provider can confirm whether your current setup is compliant.

What Digital Records Must Capture for VAT

MTD for VAT requires digital records of: the business name and address; VAT registration number; VAT accounting scheme used; the VAT account (a summary of output tax, input tax, and the net amount due); and for each supply made and received, the time of supply (tax point), the value of the supply, and the rate of VAT charged.

The records do not need to be held in a single system, but there must be a digital link between them — manual rekeying of totals between systems breaks the digital chain and breaches MTD requirements, even if the final figure is correct.

MTD for Corporation Tax: What We Know

HMRC has consulted on MTD for Corporation Tax (MTD for CT) but has not set a firm implementation date. The proposals would require companies to keep digital records and submit quarterly updates of their trading income and expenses to HMRC, in addition to the annual corporation tax return. The quarterly updates would be informational rather than creating quarterly tax liabilities.

The timetable has been pushed back repeatedly and the final shape of the rules is subject to further consultation. However, companies that already use cloud accounting software will find the transition straightforward whenever MTD for CT arrives.

Getting Ready Ahead of Mandate

The practical steps are simple: move to cloud accounting software if you have not already; ensure all suppliers and customers are invoiced digitally and that records are captured at source (scanning paper receipts through the software's receipt-capture tool, for example); and review your month-end close process to ensure the digital trail is complete without manual intervention.

For companies that currently manage accounts through spreadsheets, the transition to a fully digital workflow often reveals bookkeeping gaps that are better addressed now rather than under time pressure. Discuss timing and software choice with your accountant.