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  • Benjamin Elliott

Making Tax Digital in the UK - Everything You Need to Know

Updated: Oct 17, 2022

The UK introduced the Making Tax Digital initiative to help businesses and individuals get their tax in order and produce more efficient returns. Is your business properly set up for this new digital system?

While Making Tax Digital helps businesses stay on top of their tax requirements, it also requires the correct digital processes for submitting returns.

In this guide, we’ll explain exactly what Making Tax Digital is, how it works, and how you should streamline your business to prepare for it.

Making Tax Digital in the UK

HMRC has introduced the Making Tax Digital for VAT (MTD) initiative, which aims to set the UK up as one of the most digitally advanced tax administrations in the world.

Along with this new digital tax initiative, HMRC has also introduced a few fundamental changes to the way the UK tax system works. These changes have been put in place to change up the tax system and ensure it is more efficient, more effective, and easier for taxpayers to get their tax right.

The Making Tax Digital initiative introduces an easier system of digital returns for businesses. If your business is set up with the right expense management software, making these digital returns becomes a whole lot easier.

Digital Records and Digital Submissions for VAT

If you’re a VAT registered business with a taxable turnover above the VAT threshold, you will be required to record and submit VAT returns digitally. This means your business will need a system for recording and keeping all digital VAT records. This includes AR and AP transaction listings.

These digital records need to link to the digital VAT account that the VAT return is prepared from.

As long as your business is using the right accounting software and systems to store transactions, you can easily meet these requirements. Having an automated system to digitally track and store invoices and receipts is important for efficient digital tax returns in the UK.

Instead of manually filing VAT returns through the HMRC online portal, businesses must now file returns digitally through HMRC’s MTDfV Application Programming Interface (API). This is a new requirement under the Making Tax Digital mandate.

Making Tax Digital for Income Tax

Any self-employed businesses with annual income above £10,000 need to follow the correct rules for Making Tax Digital for income tax. This applies from 6 April 2024.

This means that any self-employed businesses and freelancers need to start keeping digital records for smoother, compliant tax returns. You can use software to digitally store your business records and send your income tax updates to HMRC instead of filing a self-assessment tax return.

If you’re still relying on manual processes to record expenses and business records, then now is the time to switch to a digital solution.

Understanding Digital Links

A key part of Making Tax Digital is a clear system of digital links that create a clear end-to-end digital trail from the accounting source system to the tax return submission.

Instead of manually inputting and transferring this information, the software systems submit it. This results in far greater accuracy.

This is necessary whether the return is prepared using a spreadsheet or using tax compliance software. Tax compliance software makes it easier to use digital links, but businesses can improve the way they use spreadsheets to comply with Making Tax Digital legislation. This will include:

  • No copying and pasting data between data sources. All VAT returns need to be automated through things like spreadsheet formulas and macros. If you have many different data sources, this process can get extremely complicated.

  • No manual re-entering data. While preparing VAT returns, businesses need to display a clear digital trail of information from their submission back to the source systems.

  • If VAT return adjustments are necessary, they will be allowed. As long as these adjustments are recorded and offer a digital trail of changes. Manually inputting data or copying and pasting data can exist in these systems.

The bottom line is that there needs to be a clear digital trail with all returns. MTD relies on automation to improve accounting accuracy. If you use an appropriate accounting software solution, this becomes a whole lot easier.

Why Making Tax Digital is Important

As a business or self-employed individual, the MTD initiative offers significant benefits.

The main advantage is that this new system makes it a lot easier to get your tax right. Tax gap figures show that many businesses and self-employed individuals find this to be a difficult task.

By introducing the MTD initiative, the digital recording system provides far greater accuracy. Using software solutions to handle record-keeping, and sending this information directly to the HMRC from the digital records improves tax efficiency in a big way.

This digital approach avoids transposition errors and reduces the amount of tax that is lost due to said errors.

How Sweep Can Help With Making Tax Digital

Making Tax Digital requires businesses to use the right digital solutions for managing their accounting and submitting tax returns. A key area of this is expense management, and accurately recording all of your business expenses in a digital system.

Sweep offers the easiest solution to business expense management. The app was designed for freelancers and small businesses to take all the time and effort out of managing expenses and accounts payable while leaving a clear digital trail.

Using Sweep will save plenty of time and improve accuracy while making it a lot easier to submit up-to-date returns in line with the making Tax Digital requirements.


Making Tax Digital will help businesses produce more effective, efficient, and accurate tax returns. We live in the digital age, so every aspect of managing your business should align with digital requirements.

As long as you are equipped with the right software, managing your digital tax returns will be easy. If you want to find out more about how Sweep can help with this, book a demo today.

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