Making Tax Digital (MTD): What You Need to Know
On 27 February 2025, HMRC released its latest evaluation of Making Tax Digital (MTD), assessing its impact against initial goals. If you are a business owner, understanding these insights is crucial for staying compliant and leveraging digital tax solutions.
What is Making Tax Digital (MTD)?
Introduced in April 2019, MTD aims to modernise tax administration through digital transformation. The initiative is built on three key objectives:
- Reducing the tax gap – Minimising tax reporting errors.
- Enhancing customer experience – Simplifying tax compliance for businesses.
- Driving economic benefits – Improving productivity through digital record-keeping.
To comply with MTD, VAT-registered businesses must:
- Maintain digital records.
- Use MTD-compatible software.
- Submit quarterly tax updates in real-time.
Additionally, businesses must ensure digitally linked records for VAT returns and use API-enabled platforms for submissions. Manual adjustments should be minimised, and transactions must be accurately coded from the outset.
Need to get MTD-ready? Check HMRC’s list of approved MTD-compliant software or consult a VAT compliance expert today.
HMRC’s MTD Evaluation – Key Findings
HMRC’s latest review provides valuable insights into how MTD is shaping UK businesses. Here are the key takeaways:
1. Fewer Errors, Smaller Tax Gap
- Businesses using MTD-compatible software reported fewer tax calculation mistakes.
- This improvement has contributed to a reduction in the UK’s tax gap, one of MTD’s primary goals.
2. Smooth Transition for Most Businesses
- Two-thirds of businesses found the MTD signup process straightforward.
- Over 50 percent had no difficulty in finding compatible software.
- More than 70 percent felt more confident about VAT submissions after their first filing.
3. Costs vs. Long-Term Benefits
- Over half of businesses faced some transition costs.
- More than two-thirds saw clear advantages, including time savings and better financial management.
- Long-term benefits outweigh the initial investment, leading to improved efficiency.
4. Digitalisation Beyond Tax Compliance
MTD is not just about tax compliance—it is driving digital transformation across UK businesses:
- Nearly half of businesses saved time by using MTD-compatible software.
- Estimated annual savings: 26–40 hours per business.
- Total financial value: £603 million – £915 million.
5. Additional VAT Revenue for HMRC
- MTD has boosted tax collection, generating an estimated £185 million – £195 million in extra VAT revenue in 2019–2020 alone.
Why MTD Matters for Your Business
HMRC’s evaluation highlights MTD’s success in:
- Improving tax compliance
- Reducing reporting errors
- Encouraging digitalisation in UK businesses
What’s Next? Stay Ahead of MTD Changes
Staying compliant with MTD is not just about avoiding penalties—it is an opportunity to streamline tax processes, improve financial management, and boost productivity.
Make sure your business is MTD-ready! Explore HMRC-approved MTD software, like VAT IT Compliance’s solution, or consult one of our tax experts today to stay ahead of future requirements.
