Understanding Making Tax Digital (MTD) and Open Finance

Introduction to Making Tax Digital (MTD)

Making Tax Digital (MTD) is a significant initiative by the UK government. It aims to transition the tax system entirely online. Under this framework, businesses must maintain digital records. They need to submit tax information using approved software.

Currently, MTD is in effect for VAT-registered businesses. However, it will expand to Income Tax Self Assessment (MTD for ITSA) starting April 2026. This change primarily impacts self-employed individuals and landlords earning over £50,000.

Key Points

• VAT-registered businesses must follow MTD regulations now.

• Starting April 2026, self-employed individuals and landlords earning £50,000+ must comply.

• From April 2027, the threshold will lower to £30,000+.

• You must utilize HMRC-approved software to maintain records and file returns.

  
  

Not sure if you're affected or what software to use? Contact us today

What is MTD for Income Tax (MTD for ITSA)?

MTD for ITSA introduces several important requirements:

1. Keep digital records of all business income and expenses.

2. Submit quarterly updates to HMRC, instead of just one yearly return.

3. Submit an end-of-period statement (EOPS) and final declaration annually.

   
   

These changes represent a major shift from the traditional system. Many small business owners remain unaware of its impending arrival.

What is Open Finance?

Open Finance is an evolution of Open Banking. It allows third-party applications and software to securely access a wider range of financial data. This includes not only your bank accounts but also savings, loans, insurance, pensions, and more — all with your consent.

Why Open Finance Matters for Your Business

• You can connect your accounting software to all financial data, creating a comprehensive view of your business.

• It facilitates better cash flow forecasting, improved budgeting, and real-time financial decisions.

• Accountants can provide superior advice based on live, linked data.

  
  

Open Finance is not mandatory, but it represents the future. Most modern accounting tools are steering in this direction.

If you're unsure how Open Finance could benefit you, phone call or email away.

Why These Changes Matter for Small Businesses

Small business owners, landlords, and self-employed individuals must understand the implications of these changes. Here are some potential challenges of not being prepared:

• Fines for late or incorrect submissions can escalate quickly.

• Manual spreadsheets may become unmanageable.

• Without digital records, claiming expenses could become more difficult.

• Cash flow management may be more challenging.

  
  

Conversely, using MTD-compliant and Open Finance-ready tools offers several advantages:

• Reduced stress and less paperwork

• Real-time tax estimates simplify planning

• Easier collaboration with your accountant

• Enhanced control over your finances

  
  

Need help setting everything up? Ultra Tax takes the hassle off your hands so you can stay compliant and focus on growing your business.

How to Prepare for MTD and Open Finance

1. Check Your Status

To determine if you are affected, consider your income. If you're self-employed or a landlord earning over £50,000, compliance with MTD is mandatory by April 2026.

Not sure where you stand? Ultra Tax can quickly review your income sources and inform you if you're in scope.

2. Select MTD-Compatible Software

Choosing the right software is crucial. Here are some popular options:

• QuickBooks

• Xero

• FreeAgent

• Sage

  
  

Ensure the software is HMRC-recognized and has features for MTD for ITSA.

Ultra Tax can recommend and even set up the best software for your needs. No tech skills are required — we handle it all.

3. Transition to Digital Now

Don’t delay your transition until 2026. The earlier you adapt, the smoother the process will be.

We assist clients in migrating to digital record-keeping every week. Let’s get yours sorted now — before the rush.

4. Communicate with Your Accountant

A knowledgeable accountant can provide essential support by:

• Setting up suitable software

• Migrating data from spreadsheets

• Tracking income, expenses, and taxes

• Ensuring timely filing

  
  

Ultra Tax is more than just your accountant; we're your digital tax partner. Let's make tax stress-free.

How Ultra Tax Can Help You

At Ultra Tax Ltd, we support small business owners across the UK in preparing for MTD and the digital future. Whether you're just starting or need guidance on software selection, we simplify the transition.

Here’s how we can assist you:

• Free consultations to evaluate your needs

• Software setup and training

• Quarterly tax submissions

• Real-time support and advice

  
  

We alleviate the burden so you can concentrate on managing your business effectively.

Ready to future-proof your business? consultation

Final Thoughts

Making Tax Digital and Open Finance are not just passing trends — they are the future of finance management. By preparing now, you can prevent penalties, streamline processes, and gain better insights into your business.

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