The Tax year is drawing to a close, and most businesses are scrambling to file quarterly VAT returns or reconcile their books. But here’s what I see CFOs getting wrong: they treat MTD (Making Tax Digital) compliance like a box to tick by the deadline, rather than a system to embed into how they operate.
Let me be direct. If you’re running a business in the UK doing more than £85,000 turnover, you’re already bound by MTD. If you’re doing £1.2m in turnover, you need income and expenses records in a digital form that’s compatible with HMRC’s systems. The rules aren’t vague—they’re specific, auditable, and increasingly monitored.
The problem isn’t the rules. The problem is that most CFOs leave the MTD setup until March, implement it badly, and then spend April to June dealing with broken integrations, mismatched data, and HMRC queries.
What MTD Actually Demands
Let’s get concrete. MTD for VAT (mandatory since 2019) requires:
- Invoices and receipts in a structured digital format
- Real-time submission to HMRC (no batching old returns)
- Bridging software that talks directly to HMRC’s API—not PDFs, not spreadsheets
- A complete audit trail showing what was submitted, when, and by whom
For income tax (the phase that’s now rolling out for the self-employed and partnerships), it’s even tighter. You need:
- Monthly digital records of income and deductible expenses
- Compatibility with HMRC’s Check Your Salary (CYS) pilot, or later, the full digital income tax account
- Software that can submit quarterly summaries without manual intervention
The kicker? Many accounting systems are half-compliant. They can create the data in MTD-compatible format, but they don’t integrate with HMRC’s API. Your bookkeeper or accountant exports a file, you email it, someone else imports it—and you’ve lost the audit trail and real-time submission requirement. That’s a compliance gap, not a solution.
Why This Matters Now (Q2 Logic)
You might ask: why does it matter now? Isn’t the deadline months away?
The answer is that Q1 is when you discover whether your current setup works. If you’re using Xero, FreshBooks, QuickBooks Online, or Sage, you should already be testing your MTD integration quarterly. If you’re running a hybrid setup (software + spreadsheets), now is when you find out whether your software can actually speak to HMRC’s API, or whether you’ve been manually uploading files and calling it “digital.”
Here’s what happens if you don’t test now:
- March 31st arrives. You realize your invoicing system isn’t compatible.
- April 1st to April 19th is a scramble to fix it before the VAT deadline.
- You submit late, or you submit with incorrect data, and HMRC flags it.
- You spend May to June in correspondence with HMRC explaining the gap.
- Your audit trail is broken. Your reconciliation is a mess.
I’ve seen this cost businesses £5k-£20k in accountant fees to fix, plus penalties.
What to Do This Month
Three things. Do them in April (before the year-end push hits):
1. Audit your digital setup. Sit down with your finance team. Run through your monthly reporting process:
- Where do invoices originate? (Email? System? Spreadsheet?)
- Where do they live? (Accounting software? Cloud storage? Both?)
- How do they reach HMRC? (Direct API? Accountant manually uploads? Combination?)
- Is there a gap where data could be lost or mismatched?
2. Test your MTD software integration. If you’re using a cloud accounting system, go into the settings. Look for “HMRC integration” or “API keys.” Does it exist? Is it switched on? Is it actually connecting to HMRC’s sandbox, or is it dormant?
If it’s dormant, contact your software provider. Ask: “Are we MTD-compliant? What version of the MTD API are you using?” If they can’t answer clearly, you have a problem.
3. Map out your income tax compliance. If you’re a partnership or director, income tax is coming. Not this year necessarily, but soon. ICAEW and ACCA have published guidance on this. HMRC’s timeline is clear: they’re moving to quarterly digital submissions for all taxpayers over £1m turnover. If you’re in that band, you need a plan to move from annual reconciliation to quarterly submission.
This doesn’t require a new accounting system—but it does require integration. If your system can’t produce a valid quarterly income summary in MTD format, you’ll be manually constructing spreadsheets for HMRC. That’s not compliance; that’s theater.
The Real Cost of Delay
Look, the letter of MTD compliance is clear. The spirit is clearer: HMRC wants to see in real-time what you’re declaring and why. They want to reduce fraud, catch mistakes early, and reduce the post-tax-year correction cycle that costs everyone time and money.
If you’re MTD-compliant, your tax affairs are transparent to HMRC. That sounds scary, but it’s actually powerful: it means you’ll catch errors before filing, not after. You’ll have a complete digital record of every transaction that touched your accounts. When (not if) HMRC asks for clarification, you’ll have the data ready, not a reconstruction job.
If you’re not MTD-compliant—if you’re using half-digital, half-manual processes—you’re carrying hidden risk. You might be technically within the deadline, but you’re operationally fragile.
Next Steps
Don’t wait. Pull your CFO or finance director into a room this week and ask three questions:
- Are we submitting to HMRC via direct API, or do we have workarounds?
- Can our software produce a valid MTD submission without manual work?
- If something breaks, do we know where and have a plan to fix it?
If you’re fuzzy on any of these, that’s your Q2 project.
MTD gets manageable if you handle it early. It gets expensive fast if you don’t.
If you’re operating across multiple jurisdictions, or moving to quarterly income tax filing, this gets more complex. That’s where you need someone who’s thought through the system, not just the deadline. If that’s your situation, get in touch to discuss your setup.