Making Tax Digital is changing the way businesses manage their tax records and report to HMRC. This guide covers the most frequent MTD errors, including incompatible software, missed quarterly deadlines, and data entry mistakes, and explains how to stay on the right side of HMRC. Find out how working with ITS Accounting can protect your business from penalties and make the transition straightforward.
Making Tax Digital – a digital future with some pitfalls
Making Tax Digital is being rolled out across different tax types and different sizes of business. For many sole traders and small companies it is a significant change in how records are kept and submitted. Like any new system, it brings the risk of errors if you are not properly prepared.
In this article we look at the most common mistakes businesses make with MTD and offer practical steps to avoid them.
The most common MTD mistakes to watch for
Moving to Making Tax Digital requires precision and attention. Here are the most frequent mistakes that can complicate your compliance:
1. Using software that is not MTD-compatible
Not all accounting or invoicing software can make submissions directly to HMRC. Using a package that lacks MTD API links means you cannot file your returns digitally, which can result in penalties.
2. Missing quarterly update deadlines
Under MTD for Income Tax, businesses must submit quarterly updates to HMRC. Missing these deadlines triggers a penalty points system that can lead to financial charges.
3. Errors in income categorisation
MTD submissions must categorise income correctly. Mixing personal and business income, or applying the wrong income category, can create problems when HMRC reviews your data.
4. Not maintaining a digital audit trail
MTD requires that records are kept digitally from the point of transaction. Scanning paper receipts after the fact is not compliant. Every transaction should be recorded digitally as it occurs.
5. Failing to check submission status
Submitting a return is only the first step. You must confirm that HMRC has accepted the submission. A technical error can mean the return has not been received even if your software showed no error.
6. Errors in VAT codes and rates
Applying the wrong VAT rate or code to a transaction is a common error. These mistakes are more visible under MTD because HMRC receives detailed transactional data.
7. Mixing business and personal expenses
Under MTD, any inconsistency between what you report and what HMRC can see from third-party data is more likely to be flagged. Keeping business and personal finances clearly separate is essential.
Consequences of MTD errors
Penalty points leading to financial charges, compliance checks from HMRC, VAT reclaim delays, and reputational risk.
How to avoid MTD errors effectively
Choose HMRC-recognised software from the start, keep records up to date throughout the year, and work with a professional accountant who manages your submissions. ITS Accounting handles all of this for you.
MTD is manageable with the right support
Making Tax Digital is not something to fear, but it does require the right preparation and ongoing attention. ITS Accounting is your partner for the transition and everything that follows.