What is Making Tax Digital? And how to prepare for it

Making Tax Digital, otherwise known as MTD, is one of the biggest changes to the UK tax system in years. And if you’re a sole trader, it’s not something you should ignore.

HMRC is moving tax reporting online, applying to everything from VAT to Income Tax. Now, instead of paper records, businesses will need to keep digital records and submit updates through approved software. It also means the need for more regular reporting. And for businesses with self-employed drivers, the impact is even bigger.

What is Making Tax Digital?

Making Tax Digital is HMRC’s plan to modernise the UK tax system. The goal is simple: make it easier for people and businesses to get their tax right.

People affected by these new regulations are now expected to file their tax returns online. The same goes for any records of income or expenses they may have accumulated throughout the period between reports. And whilst it makes it easier to submit end of year returns, it does mean needing to be more meticulous with record keeping throughout the year, providing additional tax returns now as well.

What’s changing under MTD?

Before

Before Making Tax Digital, businesses could:

• Submit one tax return per year
• Keep physical or paper records
• File returns manually with HMRC
• Submit paper returns by 31 October
• Submit online returns by 31 January

After

Under the new MTD reform, businesses now need to:

• Submit quarterly updates
• Submit a Final Declaration each year on top of this
• Keep all their records digitally
• Use software that’s compatible with MTD

Who will the new regulations affect?

Right now, MTD only applies to two types of income:

• VAT
• Income Tax

And the only people due to be affected under the Income Tax are:

• Sole traders
• Landlords

These changes will be rolled out in stages, based on income.

Are there any exemptions?

Some individuals and businesses are and will be exempt from MTD. However, you will need to apply for an exemption, and won’t be granted one automatically.

To qualify for exemption, you need to meet one of the following criteria:

• You are digitally excluded due to either age, disability, location, or another reason
• Belong to a religious group where technology goes against your beliefs
• You are a foster carer using qualifying care income
• You do not have a National Insurance number

Once you’ve submitted your request, it will need to be approved by HMRC. If your exemption is refused, you’ll have the opportunity to appeal the decision.

Making Tax Digital for VAT

MTD for VAT is already live, and has been for a while. Since April 2022, all VAT-registered businesses have been required to follow MTD rules.

It was first introduced in 2019 for businesses over the VAT threshold of £80,000. However, that soon increased to £90,000 in April 2024. All VAT-registered businesses are still required to comply regardless.

Making Tax Digital timelines

VAT

• 2019 – MTD introduced for businesses over the VAT threshold of £85,000
• April 2022 – Extended to all VAT-registered businesses
• April 2024 – VAT threshold increased to £90,000

Income Tax

• April 2026 – Income over £50,000
• April 2027 – Income over £30,000
• From 2027 onwards – Possible plans to lower the threshold to £20,000

What does this mean for logistics businesses?

Logistics businesses often rely on self-employed drivers. Many of those drivers will soon need to follow MTD income for Income Tax purposes.

This means:

• More frequent reporting
• Less room for manual processes
• A greater need for MTD-compliant systems

Spreadsheets and paper records won’t be compatible with the new regulations, and chasing drivers for missing information is only going to get harder. This means that getting compliance right from the very start is more important now than ever.

How to prepare for Making Tax Digital

The earlier you begin preparing for MTD, the better. To start, aim to:

• Review how records are currently being kept
• Identify which drivers fall under the MTD regulations
• Move to MTD-compatible software in advance
• Prepare teams and drivers ahead of deadlines with information

How Wise helps with MTD

Compliance is built into Wise. Additionally, we partner with Beamin’, an HMRC-approved MTD software provider. Together, we help logistics businesses and self-employed drivers stay compliant as reforms take place.

By using Wise as a business, self-employed drivers you have contracted now have the option to use Beamin’. This means you’re able to offer drivers access to a HMRC-recognised accountancy service that handles thousands of self-employed drivers a week.

With Beamin’, users are able to:

• Keep digital records in one place
• Prepare and submit quarterly updates
• Check VAT owed to HMRC
• View VAT history
• Complete their Final Declaration

Overall, this means your business can rest easy knowing all of the drivers are compliant and well-organised. Any chance of risk is significantly lowered, and there’s more opportunity to focus on the things that matter. It also means your drivers’ self-employed responsibilities are taken care of, eliminating any stress.