Making Tax Digital (MTD): What It Means for VAT, Non-VAT Clients, and Your Income Reporting in 2025 and Beyond

Feeling overwhelmed by the new tax rules? You’re not alone.
Making Tax Digital (MTD) is transforming how individuals, landlords, and businesses manage their tax reporting — and whether you’re VAT-registered or not, it’s something you need to understand right now.

Let’s break it down simply together — so you know what’s happening, how it affects you, and how to stay compliant while saving time and money.

What is Making Tax Digital (MTD)?

Making Tax Digital (MTD) is HMRC’s move to modernise the tax system.
It means you must keep digital records and submit your tax returns electronically using HMRC-approved software.
No more paper returns, no more manual entries into the HMRC website. Everything is becoming digital — and mandatory.

Who Does MTD Affect?

You’ll be impacted if you are:

• A VAT-registered business (even voluntary VAT)
• A self-employed person (sole trader)
• A landlord earning rental income
• Eventually, a company liable for Corporation Tax (future phase)

In short:
Whether you’re small, growing, VAT-registered or non-VAT registered, MTD will affect you.

MTD for VAT Clients: What You Must Know

If you are VAT-registered (regardless of turnover):

• You must keep digital VAT records
• You must submit VAT Returns through MTD-compatible software (like Xero, QuickBooks, Sage)

Since April 2022, ALL VAT-registered businesses must follow MTD rules, even if their turnover is below the VAT threshold (£90,000 as of 2024/25).

Still using manual spreadsheets? It’s time to upgrade — penalties for non-compliance have already started.

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MTD for Non-VAT Clients: What’s Coming?

MTD for Income Tax Self Assessment (MTD for ITSA) starts in April 2026 for:

• Self-employed people and landlords earning over £50,000 per year.

Those earning between £30,000 and £50,000 will join MTD a year later, from April 2027.

If your income is under £30,000 — you’re safe for now. But HMRC is planning to bring everyone into MTD eventually.

What Kind of Income Must Be Declared Under MTD?

For VAT-Registered Clients (MTD for VAT):

You must digitally record and report:

• All sales (standard, reduced, zero-rated, exempt)
• All business-related purchases and expenses
• VAT charged and VAT paid
• Any VAT adjustments (bad debt, partial exemptions)

For Self-Employed and Landlords (MTD for Income Tax):

You must digitally record and quarterly report:

• Business income (sales, services, freelance work)
• Rental income from property
• Business expenses (office supplies, advertising, travel)
• Property expenses (repairs, insurance, letting agent fees)

Note:
Other personal income like employment salary, pensions, savings interest, or dividends will still be reported annually, outside of quarterly updates.

How Will MTD Impact You?

More frequent reporting — Quarterly updates plus year-end submission.

Better financial visibility — Regular updates help you spot cash flow problems earlier.

Tighter record-keeping — You’ll need to stay on top of receipts, invoices, and bookkeeping.

New software costs — You’ll need MTD-compliant software, but it often improves efficiency.

Potential penalties — If you miss submissions, HMRC’s new points-based penalty system could hit you with fines.

What Should You Do Next?

✔️ Switch to MTD-Compliant Software
If you’re still using spreadsheets or manual systems, now is the time to upgrade.
Look into Xero, QuickBooks, Sage, or FreeAgent — all HMRC-recognised.

✔️ Get Professional Support
Navigating MTD can be tricky, especially if you have multiple income streams (like self-employment and rental).
An accountant can ensure you stay compliant and find hidden tax-saving opportunities.

✔️ Keep Digital Records from Now
Even if MTD isn’t mandatory for you yet, start keeping digital records. It’ll make the transition much easier.

Conclusion: MTD Is the Future — Are You Ready?

Making Tax Digital is no longer optional.
Whether you’re a self-employed freelancer, landlord, or business owner, preparing early is the smartest move.
By staying ahead, you’ll avoid penalties, stay organised, and maybe even save tax by improving your record-keeping.

At SV&Co, we help individuals and businesses transition smoothly to MTD compliance.
Whether you need advice on the right software, quarterly submission help, or full bookkeeping support — we’re here to make it simple.