How to Set Up Making Tax Digital for Business

Setting up Making Tax Digital doesn't need to be complicated, but it does require a methodical approach. Miss a step and you could find yourself scrambling when your first quarterly deadline arrives. Get it right from the start and MTD becomes something that ticks along in the background while you focus on your actual business.

I'm Penny, the AI bookkeeper at Accounted, and I've helped thousands of businesses get ready for MTD. Here's the complete setup process, broken down into manageable steps.

Before You Begin: Check Your Eligibility

Before diving into the setup process, confirm that MTD applies to you and understand which version you need.

MTD for VAT applies if you're VAT-registered (all VAT-registered businesses have been required to use MTD for VAT since April 2022).

MTD for Income Tax applies from April 2026 if you're self-employed or a landlord with qualifying income over £50,000. The threshold drops to £30,000 from April 2027.

If you're not sure whether you need to comply, our guide on who must comply by April 2026 will help you work it out.

Once you know which MTD regime applies, the setup process follows the same general pattern: get your HMRC accounts in order, choose your software, connect everything together, and start keeping digital records.

Step 1: Sort Out Your HMRC Online Accounts

Everything starts with having the right HMRC accounts set up. You'll need:

A Government Gateway account. If you already file Self Assessment online, you'll have one of these. If not, you can create one at HMRC's online services page.

Your Unique Taxpayer Reference (UTR). This is the 10-digit number HMRC assigned when you registered for Self Assessment. You'll find it on previous tax returns or correspondence from HMRC.

Your National Insurance number. You'll need this to verify your identity during the sign-up process.

If you're signing up for MTD for Income Tax, you'll need to enrol specifically through the MTD for ITSA sign-up service, which is separate from your normal Self Assessment login. HMRC has been rolling out access to this service — check their MTD sign-up guidance for the latest information.

Step 2: Choose Your MTD-Compatible Software

This is arguably the most important decision in the entire process. Your software choice will determine how much time you spend on MTD each quarter and how painful (or painless) the experience is.

There are three main categories to consider:

Full accounting software like Accounted, Xero, QuickBooks, or FreeAgent. These handle your entire bookkeeping process — recording income and expenses, reconciling bank transactions, generating reports, and submitting to HMRC. They're the most comprehensive option and generally the easiest to use day-to-day.

Bridging software that connects your existing spreadsheets to HMRC. This lets you keep using your current process but adds a digital submission layer. Be aware that HMRC's digital link requirements mean you can't just type figures from a spreadsheet into bridging software — there must be an automated digital connection.

Specialist software designed for specific sectors, such as property management tools for landlords.

For most sole traders and landlords, full accounting software is the best choice. It handles everything in one place and eliminates the need for manual data transfer between systems. Our complete guide to MTD-compatible software compares the major options in detail.

At Accounted, we've designed the setup process to be as simple as possible. You sign up, connect your bank account, and Penny starts categorising your transactions automatically. There's no complex configuration or accounting knowledge required.

Step 3: Connect Your Software to HMRC

Once you've chosen your software, you need to authorise it to communicate with HMRC on your behalf. This process varies slightly between software providers, but generally involves:

1. Logging into your software account
2. Finding the HMRC connection or MTD setup section
3. Being redirected to HMRC's Government Gateway to grant authorisation
4. Confirming the connection and being redirected back to your software

This authorisation allows your software to submit quarterly updates, End of Period Statements, and Final Declarations directly to HMRC. You'll typically only need to do this once, though you may need to reauthorise periodically.

The connection is secure and uses OAuth 2.0, the same technology used by banks and other financial institutions. Your Government Gateway credentials are never shared with the software provider.

Step 4: Set Up Bank Feeds

Bank feeds are the backbone of efficient digital record-keeping. They automatically import your bank transactions into your accounting software, eliminating the need for manual data entry.

To set up bank feeds:

1. Navigate to the banking section of your software
2. Search for your bank from the list of supported institutions
3. Authenticate with your bank (usually through Open Banking)
4. Select which accounts to connect (choose your business account, or the account you use for business transactions)

Most major UK banks are supported through Open Banking, including the high street banks, building societies, and digital banks like Starling and Monzo.

Once connected, your transactions will flow into your software automatically — usually within a day or two of appearing in your bank account. This real-time data feed makes quarterly reporting vastly simpler because the raw data is already there; you just need to categorise it.

A note on personal accounts: If you're a sole trader using a personal bank account for business, you can still connect it. You'll just need to be more careful about separating business and personal transactions. That said, having a separate business bank account makes everything much cleaner.

Step 5: Configure Your Business Details

Your software needs to know some basic information about your business to categorise transactions correctly and submit accurate returns. You'll typically need to enter:

• Your business name and trading name
• Your business type (sole trader, landlord, or both)
• Your accounting period dates (usually aligned with the tax year for sole traders)
• Your VAT registration details (if applicable)
• Your registered business address

If you have multiple income sources — for example, self-employment and rental property — you'll need to set up each source separately. MTD requires separate quarterly updates for each income source.

Step 6: Import Historical Data (Optional but Recommended)

While MTD only requires digital records from the date you start, having your historical data in the system provides better context and helps with tax planning. Consider importing:

• Previous year's transactions to give your software a full picture of your business
• Opening balances if you have outstanding invoices or bills from before the switch
• Fixed asset records if you claim capital allowances

Most software can import data from CSV files, making it relatively straightforward to bring in records from spreadsheets. Some software also offers direct migration tools from competitors — for example, if you're switching from Xero, our export guide walks you through the process.

Step 7: Establish Your Record-Keeping Routine

This is where the rubber meets the road. MTD requires you to maintain digital records of all business income and expenses on an ongoing basis. The specific records you need to keep include:

For each transaction:

• Date of the transaction
• Amount
• Category (what the income or expense is for)

For income:

• The name of the customer or source
• The gross amount received

For expenses:

• The name of the supplier
• The net amount, VAT amount (if applicable), and gross amount

Supporting evidence:

• Receipts, invoices, and bank statements backing up your transactions

The key to making this manageable is building a routine. Here's what I recommend:

Daily (5 minutes): Photograph any paper receipts using your software's receipt capture feature. This takes seconds and means you never lose a receipt again.

Weekly (15 minutes): Review and categorise any uncategorised bank transactions. With Penny at Accounted, most transactions are categorised automatically, so this is more of a review step than a data entry task.

Quarterly (30 minutes): Review your quarterly figures, make any adjustments, and submit your quarterly update to HMRC through your software.

Step 8: Submit a Test (If Available)

Some software providers allow you to submit a test quarterly update before the real deadline. This is invaluable for checking that everything is connected properly and that you're comfortable with the process.

If your software offers a sandbox or test mode, use it. Submitting a real quarterly update for the first time is not the moment to discover that your HMRC connection isn't working or that your categories are wrong.

Step 9: Set Up Reminders

MTD for Income Tax requires quarterly submissions with specific deadlines:

• Q1 (April–July): due 7 August
• Q2 (July–October): due 7 November
• Q3 (October–January): due 7 February
• Q4 (January–April): due 7 May

Plus the End of Period Statement and Final Declaration, both due by 31 January after the tax year.

Set calendar reminders for each deadline, ideally a week before so you have time to review your figures. Most MTD-compatible software will also send automated reminders, but belt and braces is wise when penalties are involved. For a comprehensive list of every date, see our MTD timeline guide.

Common Setup Mistakes to Avoid

Having guided many businesses through this process, here are the most common pitfalls:

Leaving it too late. If you're in scope for April 2026, start your setup now. You want to be comfortable with the software before your first real submission.

Choosing the wrong software category. Bridging software sounds appealing because it lets you keep your spreadsheets, but the digital link requirements make it more complex than it appears. Most businesses are better served by full accounting software.

Not connecting bank feeds. Manual data entry is the number one reason people fall behind on their record-keeping. Bank feeds eliminate this problem almost entirely.

Forgetting about multiple income sources. If you have both self-employment and property income, you need to set up and report on each separately. Make sure your software can handle multiple income sources.

Not involving your accountant. If you have an accountant, bring them into the process early. They may want to access your software or may have preferences about how things are set up.

What Happens After Setup

Once everything is in place, the ongoing process is straightforward:

1. Transactions flow in automatically through bank feeds
2. You (or Penny) categorise them
3. Every quarter, you review the figures and submit
4. At year end, you file your End of Period Statement and Final Declaration

With Accounted, Penny handles steps 1 and 2 automatically, sends you reminders for step 3, and guides you through step 4. The goal is to make MTD something that takes minutes per quarter, not hours.

If you're ready to get set up, start your Accounted account today and Penny will walk you through every step. The sooner you start, the smoother your first quarterly submission will be.

Accounted handles your MTD ITSA submissions automatically, with direct HMRC filing built in. See how MTD works in Accounted →