How to Prepare for “Making Tax Digital”

What is “Making Tax Digital”?

In March 2015, the government announced its plans to replace annual tax returns with digital tax accounts, in order to “modernise the tax system”.

The initiative aims to eliminate the need for tax returns and simplify the tax system. Instead of filling out an annual tax return, small business owners, self-employed people and landlords will be required to provide updates to HMRC at least once a quarter, via digital tools such as apps and cloud-based computing software. If you’re looking to set up a company in the near future, it’s a good idea to factor this in, when you’re planning your startup.

Who will it apply to?

According to consultation documents released last month, Making Tax Digital will apply to all businesses, self-employed people and landlords with an income of over £10,000 a year. Unincorporated businesses and landlords with an income of below £10,000 a year will be exempt.

Because the documents do not expressly address limited companies, or their directors, there has been speculation that the changes currently only apply to sole traders and partnerships.

When is it coming?

By April 2018, most businesses, self-employed people and landlords will be expected to have gone digital.

HMRC claims to be considering allowing a one year deferral time for small businesses that are over the £10,000 limit, but under a higher, yet-to-be-decided threshold.

Extension to the cash-basis threshold

HMRC are also currently considering raising the cash-basis threshold to allow more businesses to take advantage of this simpler form of accounting. At the moment, businesses must have a turnover of less than £83,000 (the VAT threshold) in order to qualify. The government are considering raising this threshold to £100,000, or even £166,000.


Failures to submit information on time that are seen as “non-deliberate” will result in “penalty points”. Once a taxpayer has reached a certain level of penalty points, they will be charged. Stronger sanctions will be in place for taxpayers who are seen as having been deliberately non-compliant.

Which software products should I use?

Which type of tool you decide to use will depend on the structure of your business. If you’re setting up a new business, this is something you should take into consideration, as part of your company formation process. If your business is registered for VAT, for example, you’ll need an app or a website that can cope with your VAT scheme. If your business is a partnership, you’ll need software that can record your partner’s details and profit shares.

The government has stated it is committed to ensuring that free software tools will be available for smaller businesses. However, HMRC will not be releasing any software products of its own.

What do I need to do now?

To make sure you’re ready for the big switch, it’s a good idea to go digital sooner rather than later. While it’s not yet mandatory to update your tax information electronically, getting into the habit of it now will save you a lot of stress later on down the line.

If you’d like to get ahead of the game, consider investing in an accounting / bookkeeping software. At The Company Warehouse, we’ll be helping hundreds of new businesses make the switch to digital over the next couple of years. To help make things easier, we’ve put together an all-inclusive Startup Accountancy Package. The Package not only includes our tried and tested cloud-based accountancy software, but also comes with training on how to use it, helping you become an expert by the time electronic tax updates become compulsory.

If you have any questions on how to use our software, our accounts team will be on hand to help.

At The Company Warehouse, we’ve helped thousands of new businesses get started. We provide help with company formation, accounts and marketing. If you have any questions about managing your accounts digitally, register with us, or give us a call on 0800 082 8727.






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