Making Tax Digital (MTD) is HMRC's programme requiring businesses and individuals to keep digital accounting records and submit tax information using compatible software connected directly to HMRC via an API, rather than manual entry through HMRC's website. It currently applies to VAT for all VAT-registered businesses, with MTD for Income Tax Self Assessment being phased in for sole traders and landlords above set income thresholds. Business Central supports MTD-compliant submission directly from within the system, maintaining the required digital link from transaction data through to the submitted return.
How Business Central maintains MTD compliance
MTD requires what HMRC describes as a digital link, meaning data must flow from the original transaction record through to the submitted figures without being manually retyped or copied between systems at any point, since this manual step is exactly what MTD was designed to eliminate. Business Central maintains this digital link natively, generating and submitting VAT returns directly from the underlying general ledger transactions through an HMRC-recognised API connection, with no manual re-entry required at any stage of the process.
Making Tax Digital in practice
- A VAT-registered business submits its quarterly VAT return directly from Business Central, with figures calculated automatically from posted transactions rather than compiled manually in a spreadsheet.
- An accountancy practice manages MTD VAT submissions for multiple clients from a single connected system, reducing the administrative overhead of switching between different client software for each submission.
- A sole trader approaching the MTD for Income Tax threshold reviews their record-keeping process ahead of the phased rollout, ensuring quarterly digital updates can be produced without manual reconstruction of data.
- A finance team uses MTD submission history within Business Central as a clear audit trail, confirming exactly what was submitted and when for every return period.
How Advantage supports MTD compliance
Advantage configures Business Central for MTD-compliant VAT submission, maintaining the required digital link from transaction data through to HMRC and helping businesses prepare for the phased rollout of MTD for Income Tax. We help accountancy practices manage MTD compliance consistently across multiple clients from a single connected system.
Frequently Asked Questions
Common questions about Making Tax Digital for UK businesses.
What does Making Tax Digital actually require of a business?
Making Tax Digital requires businesses within scope to keep their accounting records digitally, in a format that can produce the figures needed for a tax submission directly, and to submit returns to HMRC using software with an Application Programming Interface (API) connection rather than manual entry through HMRC's website. The aim is to reduce errors caused by manual transcription and give HMRC more frequent, more accurate visibility of business records.
What is the difference between MTD for VAT and MTD for Income Tax?
MTD for VAT has applied to all VAT-registered businesses since 2022 and requires digital VAT record-keeping and submission through compatible software. MTD for Income Tax Self Assessment (MTD for ITSA) is being phased in for sole traders and landlords above defined income thresholds, requiring quarterly digital updates of income and expenses to HMRC throughout the tax year, in addition to an annual final declaration, rather than the single annual return currently used under standard Self Assessment.
What counts as MTD-compatible software?
MTD-compatible software must be able to keep digital records in the required format and connect to HMRC's systems through an API to submit returns directly, without the figures being manually retyped into HMRC's online portal. Business Central, alongside the wider Microsoft Dynamics ecosystem, supports MTD-compliant VAT submission directly from within the system, maintaining the required digital link from underlying transaction data through to the submitted return.
