Making Tax Digital (MTD) — it’s a phrase that’s been buzzing around the accounting world for some time now.
You’ve probably heard the chatter and maybe even felt a twinge of uncertainty about what this means for your business (your wallet).
Well fear not, because in today’s blog, we’ll delve into the nitty-gritty of MTD costs, and how the scheme impacts different kinds of businesses. So grab a chair, settle in, and let’s demystify the costs associated with MTD together.
The basics: what is MTD?
First things first, let’s recap what Making Tax Digital actually is. MTD is part of HMRC’s plans to take tax compliance into the digital age.
Under this scheme, taxpayers need to keep their financial records digitally and use MTD-compatible software to submit their returns. So far, the rules only apply to VAT-registered businesses, but the scheme is expected to expand to self-assessment customers soon.
MTD for Income Tax (ITSA)
You need to follow the requirements for Making Tax Digital for Income Tax if you are self-employed or a landlord from:
- April 2026 if you have an annual business or property income of more than £50,000
- April 2027 if you have an annual business or property income of more than £30,000.
MTD for VAT
If you have a VAT registered business, you are now required to keep digital records and file your tax returns using compatible software.
One-time costs vs ongoing costs
There are essentially two types of costs associated with MTD —one-time setup costs and ongoing monthly or yearly expenses.
One-time setup costs
Setup costs include purchasing the software and any training you may need to get to grips with it. Depending on the complexity of your business, this could range from £200 to £500 or more.
Ongoing costs
These are usually in the form of monthly or yearly subscriptions for MTD-compatible software. The cost will vary based on the features you need but expect to budget around £15 to £35 a month for a standard package.
Bridging software: a cost-efficient option?
If you’re currently using spreadsheets for your accounting, you might not have to abandon them just yet.
Bridging software allows you to link your spreadsheets to HMRC’s system, offering a cheaper route to compliance. This software typically costs less than fully integrated accounting software but remember, it’s a more basic solution and may only be a temporary fix.
Potential savings
Now, we love a silver lining, and yes, there’s one here too! Although there are costs involved in implementing MTD, over time you might find that digital recordkeeping actually saves you money.
Cloud accounting tools are often more efficient, reduce the chance of errors, and could make your year-end accounting simpler and cheaper.
The bottom line
So, to wrap it all up, while the cost of MTD compliance will vary depending on your business, the key takeaway is you need to be prepared.
Factor these costs into your budget planning and consider it an investment in streamlining your accounting processes. In the grand tapestry of running a business, Making Tax Digital is just a single stitch — but it’s one that’s paving the way foru a more efficient and modern world of tax compliance.
We hope we’ve managed to shine a light on the financial implications of MTD, but remember, if you ever feel lost in the labyrinth of tax, we’re just a phone call away.
Get in touch to find out how our we can help you stay on top of CIS.
