What are the benefits of Making Tax Digital?

Making Tax Digital (MTD) for Income Tax is a government initiative to modernise the tax system, making it more efficient and user-friendly. The income you earn in the tax year to Saturday, 5 April 2025 could mean you’re already required to take part.

Under the new rules, sole traders and landlords with income above a qualifying threshold must use compatible software to keep digital records and submit quarterly updates to HMRC. We’ve covered this in more detail previously here.

Penalties

To help ensure compliance, HMRC has introduced a points-based penalty system for late submissions. Each late submission earns a point, and once a threshold is reached, financial penalties apply. The system is designed to be proportionate, with increasing consequences for repeated non-compliance.

Benefits of MTD

First, fewer mistakes, less stress. Used correctly, digital records are more accurate than manual entries. You can forget the paper scraps and spreadsheet struggles – digital tools reduce errors, helping your tax returns stay accurate and lowering your risk of penalties.

Next, it’s easier to keep organised. Instead of managing piles of receipts and paperwork, you store everything digitally – secure, accessible, and less likely to be lost. Most software updates automatically, so you don’t spend hours sorting records.

Then there’s real-time insight. MTD gives you up-to-date information on what tax you owe as the year progresses. That means better planning, budgeting, and no last-minute surprises when the tax bill lands.

It’s also a greener approach. Going digital cuts down on paper, which helps reduce your environmental footprint.

And finally, it helps future-proof your business. The tax system is moving towards digital, so starting now gets you ready for what’s coming.

Voluntary testing

HMRC is already running voluntary testing. This helps identify issues and improve the system ahead of full rollout. It’s also a chance for you to get familiar with the software and requirements, making the transition smoother.

Need help?

MTD fIT is designed to make your tax process simpler, more accurate, and less stressful – while supporting better planning and even helping the planet.

Get in touch with your usual Larking Gowen contact or email enquiry@larking-gowen.co.uk.

Chris Bale