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Software requirements for MTD

During the introduction of Making Tax Digital, ICAEW is sharing the latest information and discussions around the software that tax payers and agents will need to keep digital records.


Page last updated

9 January 2018

The requirements for VAT set out in clause 62 Finance Bill 2017-19, reflect the current rules for keeping and preserving records, keeping accounts and making returns. In addition, new powers will allow HMRC to require a business to keep and preserve certain records digitally. Draft regulations granting these powers were published on 18 December 2017.

It appears that for businesses which have income above the VAT threshold, software will be needed which extracts data from the accounting records and can submit information equivalent to that currently filed through the nine box submission made via the Government Gateway. As many businesses have to make partial exemption calculations, are using VAT schemes, or need to make other adjustments often involving excel spreadsheets, updated commercial software will be needed or application programme interfaces (APIs) will need to be attached to in-house accounting systems, to enable returns to be filed. 

We will update this section with further information as it becomes available.

Income tax

If you already keep digital accounting records

For those taxpayers already using supported accounting software (whether based on desktops or in the cloud), and agents running practitioner accounting software, the move to MTD-compatible software should be handled by your software vendor; they have been and continue to be in dialogue with HMRC to understand the requirements and deliver solutions for their customers in the appropriate timescale. Additional processes will be required for submitting returns quarterly.

In time, HMRC is likely to list all MTD-compatible software on its site as it does with other types of software (see, for example, its list of third-party commercial software developer products). Software for digital record keeping is also listed on gov.uk.

The requirement to file quarterly will necessitate additional processes to map data for HMRC returns that is normally only undertaken once a year; these processes could take several months to implement.

If you don’t keep digital accounting records

The main issue in MTD will be the many businesses that do not currently maintain digital accounting records but will now be required to do so. Many of these may not have computers in their businesses, although may have access to smart devices (phones or tablets). For those that choose not to move to commercially-available software packages, HMRC has indicated that free software products, with free updates, will be provided.

These businesses may choose to set up and maintain their digital accounting records themselves, using free software provided and smart devices, although many are likely to turn to accountants for advice. In addition to securing software that can run on an appropriate device, these businesses will need help setting up processes and systems to capture and store records electronically and send them to HMRC quarterly.

As requirements become clearer, we will update this site.

Are spreadsheets allowed?

In its response to the consultation documents, the Government has confirmed that businesses will be able to continue to use spreadsheets for record keeping, but they must ensure that their spreadsheet meets the necessary requirements of MTD for business (such as passing relevant information across to HMRC every quarter), which will involve combining the spreadsheet with additional software to perform the upload of data to HMRC. 

MTD Software Advisory Group 

ICAEW has brought together representatives from the major software developers and a range of accounting practices to discuss the challenges of implementing MTD. The Software Advisory Group (SAG) meets regularly.

You will find full details of the discussions on IT Counts

Since October 2017, the MTD Software Advisory group has continued to meet. Once in November and once in December. The next meeting is scheduled for February.

The meetings include representatives of HMRC, software companies and a number of practices, both large and small. At each meeting we follow a fixed agenda, this allows us to keep track of progress of each item.

In particular, we discuss the state of the application programming interfaces (APIs) being released, the communication plan to the public, the progress of the pilots, free software and the use of spreadsheets.

It is fair to say that the meetings are honest and robust. As a result all sides are benefiting from the experience and knowledge that they bring to the discussion.

We will endeavour to update this page with additional information as it becomes available.

Please email your questions to mtd@icaew.com.

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