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Making Tax Digital (MTD) Guide 2025: Tax Returns, VAT & Business Advice

By Team FVA Guides and Articles, Tax Saving tips and Advice

The UK's tax environment is changing with the complete rollout of Making Tax Digital (MTD), a government drive to overhaul the tax system and make it less error-prone and more efficient. With further progression into 2025, companies and individuals need to remain updated on the new MTD regulations to avoid non-compliance. 

For business owners and taxpayers in the Watford area, it is of the utmost significance to have a good understanding of Making Tax Digital, or MTD for short, since the scheme has colossal implications not just for VAT but also for Income Tax and eventually Corporation Tax. If you actually need help in being compliant with MTD and are looking for a trustworthy Tax Accountant, you simply can't go awry with availing yourself of the services of Fair View Accountants since they are well-placed to provide you with superior guidance and bountiful assistance as needed.

In this article, we will discuss:

 

  • What Making Tax Digital is and its major milestones.
  • The most recent update of HMRC's MTD in 2025.
  • How companies must prepare for MTD ITSA (Income Tax Self Assessment).
  • The significance of employing MTD-compliant bookkeeping software.
  • How Fair View Accountants can assist with tax returns, financial reports, and business consulting.

 

What is Making Tax Digital (MTD)?

 

Making Tax Digital, also commonly referred to as MTD, is a scheme that is spearheaded by HM Revenue and Customs (HMRC), and it has been designed with the single objective of streamlining the tax regime as well as making it digital in the United Kingdom. This scheme mandates various stakeholders, including businesses of all sizes, the self-employed, and landlords, to maintain accurate digital records and submit their tax returns through software that is designed to meet the requirements of MTD.

The project was initiated gradually and in well-planned stages:


  • MTD for VAT: MTD for VAT, or Making Tax Digital for Value Added Tax, became live in April of 2019. MTD for VAT makes it mandatory for all VAT registered businesses with turnover in excess of the VAT threshold to use digital software to make their VAT returns.
  • MTD for Income Tax Self Assessment (ITSA): Initially to be 2024, currently being rolled out from April 2026.
  • MTD for Corporation Tax: Designed for the future but in consultation at the moment.

 

Latest MTD Updates for 2025

 

1. Making Tax Digital for Value Added Tax Compliance

 

As of April 2022, all VAT companies, irrespective of turnover, are required to utilize MTD for VAT. VAT-registered companies are required to ensure, from 2025:


  • They use accounting software that is completely MTD-compliant at this time.
  • They file their VAT returns over the internet.
  • Electronic purchase and sales records are maintained in an orderly manner strictly in accordance with HMRC guidelines.


For additional information, you can refer to HMRC's latest VAT compliance guidelines. 


2. MTD for Income Tax Self Assessment (MTD ITSA)

 

HMRC has announced the phased introduction of MTD ITSA:

 

  • April 2026: Companies and property owners who make more than £50,000 a year will have to comply.
  • April 2027: Companies and landlords with turnovers of over £30,000 a year will also come into the net.
  • Post-April 2027: Since April of last year 2027, further rollouts to people earning below £30,000 are now seriously in consideration and under review.

 

Key Requirements for MTD ITSA:

 

  • Keep careful electronic records of your income and your spending.
  • Rather than a single yearly tax return, it is better that one makes one quarterly.
  • Use HMRC-licensed software for submission of tax.


In need of a Watford Tax Advisor to assist in MTD for ITSA, Fair View Accountants can be of help with the conversion of your tax books to digital data and maintaining maximum compliance with the HMRC rulebook.

For a detailed guide on tax record-keeping under MTD, check out our comprehensive MTD record-keeping guide. 


3. National Insurance and MTD

 

Recent changes that have been made public by HMRC in their Agent Update 128 give some insight into some very significant changes in the context of National Insurance Contributions, or NICs. It is extremely essential for business people and self-employed persons to be thoroughly aware of any alteration in NICs because the development could impact their tax liabilities. Keeping the books accurate and maintaining correct record-keeping procedures through the Making Tax Digital (MTD) scheme enables one to manage such contributions more effectively and fulfill their liabilities.

Learn more about National Insurance changes.


How to Prepare to Meet Making Tax Digital in 2025

 

To ensure a successful avoidance of any possible penalty and a smooth transition process, it is crucial that companies act deliberately and actively:

 

1. Select MTD-Compliant Software

 

Invest in MTD-compliant accounting software that is well integrated with HMRC's systems. Some of the most popular ones are:

 


These websites enable simple filing of tax returns and offer real-time business financial information.

 

2. Maintain Digital Records

 

Under MTD regulations, businesses are required to maintain digital evidence of each transaction, with

 

  • Sales and revenue
  • Expenses
  • VAT information 


Employing a Tax Accountant in Watford, like established Fair View Accountants, can go a long way in regards to optimizing the effectiveness of your online bookkeeping processes as well as guaranteeing your financial accounts are accurate.

 

3. Submit Quarterly Tax Updates


It is essential to submit your Quarterly Tax Updates regularly. Rather than a once-a-year tax return, MTD ITSA businesses have to file quarterly. The updates give HMRC real-time visibility over business profits, and therefore, tax liabilities are more predictable.

 

4. Get Professional Business Guidance

 

Professional business guidance from experienced accountants must be sought for straightforward MTD compliance. Fair View Accountants offers:

 

  • MTD registration assistance
  • Software suggestions and setup
  • Tax planning and business growth strategies

 

How Fair View Accountants Can Assist You in Achieving Your Financial Goals

 

If you require a reliable Tax Advisor in Watford, Fair View Accountants provides professional services to ensure easy compliance with MTD. Their most critical services are:

 

1. Tax Returns and Financial Statements documentation

 

  • Preparation and submission of MTD-compatible self-assessment tax returns.
  • Preparation of accurate financial statements to enable tax calculation.
  • Tax planning from time to time to reduce liabilities and enhance deductions.

 

2. Bookkeeping & Digital Accounting

 

  • Real-time bookkeeping through cloud-based accounting software.
  • Ensuring compliance with MTD for VAT and MTD ITSA.
  • Having a thorough and well-organized account of every business expenditure along with the income received is imperative to provide accurate tax reporting.

 

3. VAT & National Insurance Compliance

 

  • Managing VAT returns and MTD compliance.
  • Providing advice on National Insurance Contributions, the most current developments and adjustments taken into account that have already been implemented.

 

4. Business Issue Advice and Strategic Tax Planning

 

  • Assisting businesses to enhance and refine their financial planning for increased efficiency and effectiveness.
  • Offering business advice with a growth consideration.
  • Assisting with corporation tax planning in preparation for MTD rollout.

 

Conclusion

 

Making Tax Digital is presently revolutionizing the tax system within the United Kingdom, hence it is extremely necessary for individuals and businesses to be at the helm of the changing compliance needs that ensue. With the onset of MTD ITSA, which is imminent in 2026 and onward, it becomes imperative for companies to employ MTD standard-compliant software, maintain digital records up to date, and file their tax returns on time, quarterly.

For professional advice on tax returns, VAT registration, and financial accounts, Watford businesses can trust Fair View Accountants. Their experienced professionals make MTD compliance seamless, allowing businesses to avoid tax complexities while maximizing financial performance. For assistance with MTD in Watford, contact Fair View Accountants today for bespoke business advice and professional tax support.

 

FAQs

 

What is Making Tax Digital (MTD)?

MTD is a government program mandating businesses to maintain digital records and file tax returns online with HMRC-approved software.

 

Who has to comply with MTD?

VAT-registered businesses, landlords, and self-employed people earning over certain limits have to comply with MTD rules.

 

When does MTD for ITSA begin?

MTD for ITSA begins in April 2026 for companies and landlords with earnings above £50,000 and in April 2027 for those with earnings above £30,000.

 

What is MTD-compliant software?

Software such as QuickBooks, Xero, Sage, and FreeAgent is MTD-approved and enables easy tax filing.

 

What are the consequences if I am not compliant with MTD?

Failure to comply may have penalties imposed by HMRC, including fines for late or erroneous filing.

 

How will MTD impact VAT returns?

Companies are required to maintain digital VAT records and file VAT returns through compatible software.

 

Will I still be able to use spreadsheets for tax accounts?

Yes, but you will have to utilize bridging software to interface your spreadsheets with HMRC's MTD system.

 

Will small businesses be obliged to meet MTD requirements?

Currently, only those companies with the income thresholds are obliged to meet the requirements, but it could be rolled out to smaller businesses in the future.

 

How often do I need to update tax under MTD?

MTD for ITSA requires quarterly reporting instead of a single annual tax return.

 

Where can I get help with MTD compliance?

Specialist help for businesses transitioning to MTD is available from Fair View Accountants in Watford.