Making Tax Digital (MTD) 2025: Key Updates UK Accounting Firms Must Know

Gaurav Verma
Jun 17
4 min read

Stay up to date with the latest Making Tax Digital (MTD) changes for 2025. Learn what’s new, who it affects, and how UK accounting firms can stay compliant.

A man is filing tax online using a laptop and calculator.

Introduction: Why MTD Updates Matter in 2025

Making Tax Digital (MTD) is a flagship HMRC initiative designed to modernise the UK tax system by digitising tax record-keeping and reporting. Since its initial rollout for VAT in 2019, MTD has been gradually expanding to cover income tax and other taxes, transforming how businesses and individuals interact with HMRC.

For UK accounting firms, staying compliant with evolving HMRC mandates is critical. The 2025updates mark a significant phase in MTD’s expansion, introducing new requirements and deadlines that will impact a broader range of taxpayers. Understanding these changes is essential for firms to guide clients effectively, avoid penalties, and leverage the efficiencies offered by digital tax processes.

What Is Making Tax Digital? (Quick Recap for 2025)

Making Tax Digital is HMRC’s programme to digitise tax administration, aiming to reduce errors, improve accuracy, and make tax management more efficient. The original goals included:

Moving away from paper-based records to digital record-keeping.
Enabling taxpayers to submit tax information electronically using compatible software.
Encouraging more frequent updates rather than annual submissions.

Timeline of key rollouts:

April 2019: MTD for VAT became mandatory for VAT-registered businesses above the threshold.
April 2024: MTD for Income Tax pilot re-opened for volunteers.
April 2026: MTD for Income Tax becomes mandatory for self-employed and landlords with income over £50,000.
April 2027: Threshold lowers to £30,000.
April 2028: Threshold lowers further to £20,000

What’s New in MTD for 2025?

Expanded Scope: Who Is Affected Now?

From 2025 onwards, MTD’s scope broadens significantly. More sole traders, landlords, partnerships, and LLPs fall under the mandate, particularly those with income above new lower thresholds. This includes:

Self-employed individuals and landlords with combined income exceeding £50,000 from April 2026.
Those earning between £30,000 and £50,000 from April 2027.
Those earning over £20,000 from April 2028.
Partnerships are expected to be included soon, though exact dates remain under consultation.

New Thresholds and Deadlines

The phased lowering of income thresholds means many more taxpayers must comply in the coming years. Deadlines correspond to the tax year following the year in which income exceeds the threshold, with compliance mandatory from the 6th of April after the filing deadline for the relevant tax year.

Filing Frequency and Format Changes

MTD requires quarterly digital updates of income and expenses instead of a single annual self-assessment return. Taxpayers can choose to report on standard tax quarters or calendar quarters. At the end of the tax year, a final declaration confirms the year’s figures and reconciles any differences.

Compatible Software Requirements

HMRC mandates the use of functional compatible software capable of:

Maintaining digital records.
Submitting quarterly updates to HMRC.
Receiving data from HMRC.

While spreadsheets may still be used, they must be combined with bridging software to ensure digital links to HMRC systems.

Who Needs to Comply With MTD in 2025?

VAT-Registered Businesses:
All VAT-registered businesses above the £85,000 threshold have been under MTD for VAT since 2019, with some extensions to smaller businesses by 2022.

Self-Employed Individuals and Landlords:
Those with combined income above £50,000 from self-employment and property letting must comply from April 2026. This threshold lowers in subsequent years to include smaller businesses.

Partnerships and LLPs:
General partnerships are expected to join MTD in phases, with some mandated from April 2025, though full details and deadlines are still being finalised.

How to Prepare for the Latest MTD Mandates

Checklist for Accounting Firms:

Identify clients affected by the new thresholds.
Assess current software compatibility with HMRC’s MTD requirements.
Plan for quarterly data submissions and final declarations.

Software Migration Tips:

Transition clients to HMRC-recognised digital accounting software.
Ensure software supports bridging if spreadsheets are used.
Test software integration with HMRC systems before deadlines.

Client Communication Strategy:

Inform clients early about upcoming MTD obligations.
Provide clear guidance on record-keeping and reporting changes.
Offer training or resources to ease the transition.

Training and Team Readiness:

Training ensures consistent accounting process improvement firm-wide. Equip teams with knowledge of MTD rules, software use, and client advisory skills to manage compliance effectively.

Penalties and Compliance Risks Under MTD

New HMRC Penalty Regime

HMRC has introduced a points-based penalty system for late submissions and payments under MTD. Penalties escalate with repeated non-compliance, incentivising timely and accurate filings.

Late Filing and Payment Implications

Late quarterly updates or final declarations can attract penalties, while late payments may incur additional charges. Early adoption and robust compliance processes help mitigate these risks.

How to Avoid Compliance Mistakes

Maintain digital records continuously.
Submit quarterly updates on time.
Use compatible software with automated reminders.
Monitor deadlines carefully and communicate proactively with clients.

Best MTD-Compatible Software for UK Firms

Popular software solutions that comply with MTD requirements include:

QuickBooks: User-friendly with strong HMRC integration.
Xero: Cloud-based with real-time collaboration features.
FreeAgent: Tailored for small businesses and freelancers.

Integration Tips:

Ensure software supports bridging if spreadsheets are used.
Leverage APIs for seamless data transfer between systems.
Choose platforms that provide real-time dashboards and alerts.

Choosing the Right Tech Stack:

Select software that fits your firm’s size, client base, and workflow preferences. Consider scalability, support, and training availability to maximise adoption success.

How Offshore Teams Can Support MTD Compliance

Leveraging Virtual Teams for Data Entry and Return Filing

Offshore teams can handle routine data entry, bookkeeping, and preparation of quarterly updates, freeing UK staff to focus on advisory and compliance oversight.

Time Zone Advantages

Working across time zones enables near 24-hour productivity, accelerating turnaround times for client submissions.

Enhancing Turnaround and Accuracy

With proper training and digital tools, offshore teams can enhance accuracy and consistency, reducing errors and compliance risks.

Final Thoughts: MTD Is a Digital Opportunity, Not Just a Duty

Making Tax Digital updates bring challenges but also significant opportunities for UK accounting firms. Embracing MTD enables firms to modernise workflows, improve client service, and offer value-added advisory services based on real-time financial data.

Rather than viewing MTD as a compliance burden, firms should see it as a catalyst for digital transformation and growth. By proactively adopting MTD-compatible software, training teams, and engaging clients, accounting firms can position themselves as trusted partners in a rapidly evolving tax landscape.