The government has been gradually rolling out Making Tax Digital (MTD), the initiative designed to modernise the UK tax system by reducing common mistakes in record-keeping, tax calculations and return submissions.
These errors often lead to added costs and wasted time for both businesses and HMRC, so the shift to digital is intended to make reporting faster, more accurate and easier to manage. While some parts of the rollout, particularly those involving Corporation Tax, have been paused, the overall direction is clear: digital compliance is becoming the standard.
For startups, it’s important to know how Making Tax Digital will affect you. In this guide, we’ll cover what MTD involves, the latest HMRC updates, and the simple steps you can follow to stay compliant and stress-free.
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What is MTD?
Making Tax Digital (MTD) is a government programme that sets out how businesses and individuals must manage their tax affairs. It requires:
- Keeping financial records in a digital format
- Using HMRC-approved software to submit returns directly
In practice, this means startups need to move away from paper records or spreadsheets and adopt accounting software that can manage records, calculate taxes and file returns online.
Latest MTD update from HMRC
On 21 July 2025, HMRC announced in its latest Transformation Roadmap that it will no longer move forward with MTD for Corporation Tax.
Originally, the plan required companies to keep digital financial records and send quarterly updates through HMRC-approved software, followed by a final annual Corporation Tax return. The rollout was expected no earlier than April 2026.
This has now been paused because of the complexity of the corporation tax system and the wide variation in how different businesses operate, from small startups to large multinationals.
HMRC concluded that a one-size-fits-all approach would be impractical and risk placing unnecessary burdens on companies already filing digitally. Instead, it is focusing on upgrading its own systems and prioritising MTD for Income Tax, which is still due to start in April 2026.
At this stage, there is no confirmed timeline for a revised MTD solution for Corporation Tax. HMRC has said it will continue to consult with businesses and provide early clarity if and when a new digital approach is introduced.
However, MTD for VAT continues to move forward. If your startup is registered for VAT, MTD already applies to you. Since April 2022, all VAT-registered businesses, regardless of turnover, have been required to maintain digital records and use compatible software to submit VAT returns.
If you have recently registered for VAT or plan to do so soon, now is a good time to check that your accounting systems are fully MTD compliant.
Not sure if your systems are ready?
At Jump Accounting, we can guide you through the process and make compliance simple. Speak to our team today!
How MTD affects startups
While the goal is to make taxes simpler and more accurate, adopting digital systems comes with both advantages and practical hurdles.
Benefits for startups:
- Streamlined admin
MTD-compatible software automates bookkeeping tasks, saving time on manual data entry, calculations, and paperwork. - Fewer errors
Digital recordkeeping reduces the risk of mistakes, which means more accurate returns and less chance of HMRC penalties. - Better financial visibility
Most MTD software comes with dashboards and real-time reporting, giving founders clearer insight into cash flow, expenses, and tax liabilities. - Easier compliance
With automatic reminders and built-in checks, MTD software helps you stay on top of deadlines and keep your records in line with HMRC rules. - Future-proofing your business
As more tax processes go digital, getting set up now puts you ahead of the curve and builds scalable systems from the start.
The challenges to consider:
- Learning curve
Switching to new systems can take time, especially if you have been using spreadsheets or manual records. You will need to get familiar with the software and its features. - Initial setup costs
Some platforms charge a monthly fee, and you may need help from an accountant to get everything in place. For early-stage startups, this may feel like an added cost. - Keeping up with updates
MTD is rolling out in phases. You will need to stay aware of when new requirements apply to your business, particularly for income tax and corporation tax. - Risk of penalties
If you submit your returns late or use a system that is not MTD-compliant, HMRC may issue penalties. Getting prepared early can help you avoid this.
That’s where expert support comes in
Getting started with MTD can feel overwhelming, but you don’t have to do it alone. Our team uses Xero and QuickBooks – both HMRC-recognised platforms – to manage your digital records, ensure compliance, and file returns on time. We handle it all, so nothing slips through the cracks.
Need help getting started? Contact our team today!
What startups need to do now: A simple checklist
To help you stay ahead of Making Tax Digital, here’s a simple checklist to ensure your startup is compliant and stress-free.
1. Check if MTD applies to your startup
- VAT registered businesses: If your business is currently VAT registered, MTD already applies to you. All VAT-registered businesses are now required to submit their returns digitally using approved software.
- Approaching VAT Threshold: If your VAT taxable turnover over the past 12 months is more than £90,000, or you expect it to pass that threshold in the next 30 days, you must register for VAT. Once registered, MTD rules will apply.
You can register for VAT online here, or if you’d prefer not to do it yourself, contact our team and we’ll handle the process for you.
2. Use MTD-compatible software
You will need to record your financial data and submit tax returns using software that is approved by HMRC. Tools like:
Each offers different features and pricing, so choose one that suits your business needs.
At Jump Accounting, we’ve tested the leading platforms and confidently recommend Xero for our clients. It is a trusted, HMRC-recognised system that integrates well with growing businesses. We also offer up to 50% off for the first three months, helping you stay compliant without straining your early-stage budget.
3. Submit returns through your software
Once your digital records are in place, all your tax returns must be filed directly through your accounting software. Manual submission via the HMRC’s website is no longer permitted under MTD rules.
Don’t forget: Stay on top of deadlines
Making Tax Digital comes with strict reporting schedules, and missing a deadline can lead to penalties.
HMRC has a points-based penalty system for late submissions and financial penalties for late payments.
- Late submission penalties: Each late submission accrues penalty points. For quarterly submissions (like VAT), reaching four points triggers a £200 fine.
- Late payment penalties: Penalties can apply if tax is unpaid after 15 and 30 days from the due date, plus daily interest.
If you’re unsure about your specific deadlines or the penalty rules, check the HMRC website or ask your accountant (if you have one).
Need help navigating MTD?
We’re here to help! As an Authorised Corporate Service Provider (ACSP), we at Jump Accounting handle everything from setting you up with HMRC-recognised software to filing your returns accurately and on time. We take the stress out of compliance so you can stay penalty-free and focus on running your business. Get in touch today!
Frequently asked questions
1. Does MTD apply to my startup if I’m not VAT registered yet?
Even if you’re not VAT registered, preparing early with compliant software makes it easier to switch later. VAT compliance becomes mandatory once your taxable turnover exceeds £90,000 in 12 months or if you expect to exceed that threshold in the next 30 days.
2. Can I use spreadsheets for MTD compliance?
Yes, you can still use spreadsheets, but only if they are connected to HMRC through approved bridging software. This software links your digital records to the HMRC system, ensuring full compliance.
3. What records do I need to keep for MTD?
You must keep digital records of all sales, purchases, and VAT-related transactions. This includes the date, amount, and VAT rate for each transaction. These records must be maintained using MTD-compatible software or spreadsheets linked via bridging software.
