Making Tax Digital for Business
Making Tax Digital for Business: 2025 Update
The government has continued to evolve its approach to Making Tax Digital (MTD) for Business, which was officially implemented for VAT in April 2019. As of 2025, MTD is now an integral part of the UK tax system, with further developments aimed at simplifying tax compliance for businesses.
Under the current rules, VAT-registered businesses with a turnover exceeding the VAT registration threshold are required to:
Maintain Digital Records: Businesses must keep their VAT records digitally, ensuring all transactions are accurately recorded using compatible software.
Submit VAT Returns Digitally: VAT return information must be submitted to HMRC through MTD-compatible software, streamlining the reporting process and reducing the risk of errors.
As of 2025, MTD has also been expanded to include income tax and Corporation Tax, making it compulsory for all businesses within these categories to comply with MTD requirements. However, businesses with turnover below the VAT threshold can still opt into the MTD system voluntarily for both VAT and income tax purposes, which can help simplify their tax reporting.
The introduction of MTD for income tax is particularly significant, with a phased implementation planned, starting with self-employed individuals and landlords. This will further enhance transparency and efficiency in the UK’s tax system.
For the latest guidance and developments regarding MTD, businesses are encouraged to stay informed through the HMRC website or consult with their accountants.
Making Tax Digital Exemptions: 2025 Update
As of 2025, exemptions to Making Tax Digital (MTD) requirements are still available under specific circumstances. HMRC may grant exemptions for businesses operated by members of religious societies or orders whose beliefs are incompatible with the use of electronic communications. Additionally, certain insolvent businesses may qualify for exemptions. Other reasons for exemptions may include circumstances where it is not reasonably practicable for a business to make an electronic return due to factors such as disability, age, remoteness of location, or other valid reasons.
Under the current regulations, any business in scope for MTD must use functional compatible software to meet the new requirements. This software can be a single program or a combination of compatible software programs that connect to HMRC systems via an Application Programming Interface (API). The functions of this compatible software include:
Keeping Records in a Specified Digital Form: Businesses are required to maintain their records digitally in accordance with HMRC specifications.
Preserving Digital Records: All digital records must be kept for a minimum of six years.
Creating VAT Returns: The software must generate VAT returns from the digital records and submit this information to HMRC electronically.
Voluntary Data Submission: Businesses can provide HMRC with additional VAT data voluntarily.
Receiving Compliance Information: The software should allow businesses to receive information from HMRC via the API platform, confirming compliance with the requirements.
Digital records must include:
- Designatory Data: This encompasses the business name, principal place of business, and VAT registration number, along with details of the VAT accounting schemes in use.
- VAT Account: Each VAT-registered business is required by law to maintain a VAT account.
- Supply Information: Records of supplies made and received must also be documented.
For comprehensive guidance on required information, businesses should refer to the latest resources provided by HMRC.
HMRC continues to update software providers and the public regarding the specific requirements and functionalities expected of MTD-compatible software, ensuring businesses can effectively comply with the regulations.
