Upcoming UK Making Tax Digital (MTD) Changes in 2025

The UK government has announced significant updates to the Making Tax Digital (MTD) initiative, set to take effect in 2025. These MTD changes aim to modernise tax compliance, streamline processes for businesses, and ensure fair competition. Whether you’re a business owner, accountant, or tax professional, understanding these changes is crucial to staying compliant and avoiding penalties.

In this article, we explore the key updates, their implications, and actionable steps you can take to prepare.

Key MTD Changes in 2025

Expansion of Making Tax Digital Requirements 

By 2025, the scope of Making Tax Digital (MTD) will broaden to include all VAT-registered businesses, regardless of turnover. This change ensures that even the smallest businesses adopt digital record-keeping and submit VAT returns electronically using approved software.

The key points to consider with these changes are that paper VAT returns will no longer be accepted, businesses must use HMRC-compatible software for submissions, and real-time updated on VAT liabilities will be available.

Introduction of Digital Income Tax Submissions 

The MTD initiative will also extend to Income Tax Self Assessment (ITSA). This change will require self-employed individuals and landlords with income over £50,000 to maintain digital records and submit quarterly updates through approved software.

Implications with this include greater visibility of tax liabilities throughout the year and elimination of manual record-keeping for affected taxpayers.

Mandatory Use of Approved Software 

HMRC has made it clear that only software meeting their compliance standards will be accepted for MTD submissions. This ensures accuracy and compatibility across the board. For businesses, this means that investing in compliant software is essential and with this, staff training may be necessary to allow for effective use of the new systems.

Alignment of Tax Deadlines 

To simplify compliance, the government is considering aligning deadlines for VAT, Income Tax, and Corporation Tax submissions under MTD. While specific details are still under consultation, this change could reduce confusion and administrative burdens for businesses.

Focus on Small Businesses and Sole Traders 

Previously excluded smaller businesses and sole traders will now be brought into the MTD fold. This ensures uniformity across all VAT-registered entities and promotes digital transformation at all levels.

How to Prepare for the Changes

1. Upgrade Your Accounting Systems 

Ensure your business uses HMRC-approved software for both VAT and income tax submissions. Many providers offer integrated solutions that simplify compliance.

2.      Understand Your Obligations

Identify whether the new rules apply to your business or individual circumstances. This includes understanding turnover thresholds and specific submission requirements.

3.      Seek Professional Advice 

Consult with a tax advisor to understand how the changes will impact you. Professional advice can help you transition smoothly and avoid costly mistakes.

4.      Train Your Team 

If you employ staff who handle financial records or tax submissions, ensure they are trained to use new systems and understand compliance requirements.

5.      Leverage Automation 

Explore opportunities to automate processes such as record-keeping and tax calculations. Automation reduces errors and saves time.

Reasons For Outsourcing

The upcoming MTD changes in 2025 signify the UK government’s commitment to a more efficient, transparent, and fair tax system. While these updates may present initial challenges, proactive planning can ease the transition and even uncover new opportunities for growth.

Staying up to date with changing regulations can be difficult. However, by outsourcing accounting responsibilities like MTD, including ITSA, VAT, and upcoming changes to Corporation Tax, you can ensure you remain compliant with HMRC. This allows you to focus on your business operations and divert your resources to growth.

With the MTD initiative in place, you must maintain digital records and submit returns using compatible software. Outsourcing your VAT functions means that you don’t have to train your employees in a compatible software and instead can rely on professionals who are fluent in all software types.

At Ratiobox, we offer a number of Bookkeeping Services, from MTD, Purchase and Sales Ledger Management and more. Choosing us means you’ll remain compliant with HMRC regulations and reduce the worry of error in your accounting. To find out more, talk to one of our experts who are happy to answer your questions.