What Making Tax Digital Actually Requires from UK Businesses
Making Tax Digital (MTD) is HMRC's programme to move UK tax administration entirely online with digital record-keeping. It has two active phases that affect most UK small businesses:
- MTD for VAT: Mandatory since April 2022 for all VAT-registered businesses. Requires digital records and VAT returns submitted via MTD-compatible software directly linked to your HMRC account.
- MTD for Income Tax Self Assessment (ITSA): From April 2026 for self-employed individuals and landlords with qualifying income above £50,000. From April 2027 for those above £30,000. Requires quarterly income and expense updates plus an end-of-period statement.
MTD does not require a UK-based bookkeeper. It requires digital records, MTD-compatible software, and submissions through a UK HMRC account. These are software and access requirements — not geographic ones. An Indian CA firm meets the first two; the submission step requires your HMRC credentials.
What an Indian Bookkeeper Handles Under MTD — and What They Cannot
The clearest way to understand the division is to separate MTD into its two components: record-keeping and submission. An Indian CA firm handles the first entirely; the second requires your UK HMRC access.
| MTD Task | Indian CA Firm | You / UK Agent |
|---|---|---|
| Digital record-keeping in MTD-compatible software | Handles fully | Not required |
| Transaction coding and categorisation | Handles fully | Not required |
| Bank feed reconciliation | Handles fully | Not required |
| VAT return preparation (output tax, input tax, VAT100 figures) | Handles fully | Reviews before submission |
| Quarterly income and expense summaries (MTD ITSA) | Handles fully | Not required |
| End-of-period statement preparation (MTD ITSA) | Handles fully | Reviews and confirms |
| MTD VAT submission via HMRC-linked software | Cannot submit | Submits (under 5 minutes) |
| MTD ITSA quarterly update submission | Cannot submit | Submits via software |
This division is identical to how a UK bookkeeper would work with you. No bookkeeper — UK-based or overseas — can submit to HMRC without access to your HMRC account. The submission step has always been the business owner's or agent's responsibility. MTD has formalised this, not changed it.
At Sharma Jyoti and Co, we prepare VAT returns to MTD-ready standard in Xero or Sage. Our clients typically spend under 5 minutes each quarter reviewing and submitting — the preparation work is done.
MTD for Income Tax Self Assessment — What Is Coming in 2026 and 2027
MTD for ITSA represents a significant change for self-employed individuals and landlords. Instead of one annual Self Assessment return, businesses must:
- Keep digital records of all income and expenses throughout the year
- Submit quarterly updates to HMRC — four times per year instead of one annual return
- Submit an end-of-period statement confirming the full-year figures after the tax year ends
- Complete a final declaration (replacing the Self Assessment tax return)
The quarterly update requirement is where an Indian bookkeeping team adds the most value under MTD ITSA. Rather than scrambling at year end to reconstruct 12 months of records, your Indian bookkeeper maintains real-time records throughout the year and produces each quarterly summary when due. You review and submit — the same 5-minute quarterly task as under MTD for VAT.
| MTD ITSA Phase | Start Date | Who Is Affected |
|---|---|---|
| Phase 1 | April 2026 | Self-employed and landlords with qualifying income above £50,000 |
| Phase 2 | April 2027 | Self-employed and landlords with qualifying income above £30,000 |
| Phase 3 (proposed) | TBC | Those with qualifying income above £20,000 |
| Partnerships | TBC | Date not yet confirmed by HMRC |
If you are approaching an MTD ITSA threshold, moving to an Indian bookkeeping firm now — before April 2026 — gives you time to establish the workflow, set up software access properly, and have your quarterly rhythm working before the first submission is due.
How MTD-Compatible Software Works with an Offshore Bookkeeping Team
Every major MTD-compatible software product allows you to invite external advisers with their own login. This is the standard model for outsourced bookkeeping — whether the team is in Leeds or Lucknow.
The four most widely used MTD-compatible options for UK small businesses:
- Xero: Invite your Indian bookkeeper as an Adviser — full access to code transactions, reconcile, prepare VAT returns, and run reports. You retain admin (bank connection control, subscription, user management). MTD VAT submission happens directly from Xero using your HMRC credentials.
- Sage Accounting: Similar adviser access model. Widely used by UK manufacturing, construction, and professional services firms. Well understood by Indian CA firms with UK client experience.
- QuickBooks Online: Accountant access invitation gives your Indian bookkeeper coding and reconciliation access. MTD VAT submission via QuickBooks using your HMRC credentials.
- FreeAgent: Popular with UK freelancers and contractors. Supports MTD VAT. Adviser access available.
Cost Comparison: MTD-Compliant Bookkeeping UK vs India
MTD has increased the workload for UK bookkeepers — quarterly submissions mean quarterly deadlines rather than one annual rush. This has pushed UK bookkeeping costs upward for businesses that need active quarterly management.
| Business Type | UK Bookkeeper (monthly) | Indian CA Firm (monthly) | Annual Saving |
|---|---|---|---|
| Sole trader / freelancer (low volume) | £200–£350 | £60–£100 | £1,680–£3,000 |
| Limited company (100–300 transactions/month) | £350–£600 | £100–£180 | £2,040–£5,040 |
| Limited company with payroll (up to 10 staff) | £500–£850 | £150–£250 | £4,200–£7,200 |
| Landlord with multiple properties | £250–£450 | £80–£150 | £2,040–£3,600 |
These figures include full MTD compliance — digital records, quarterly VAT preparation (or quarterly ITSA summaries where applicable), and year-end accounts preparation for review by your UK accountant. The Indian firm prepares; you submit.
For UK businesses approaching MTD for ITSA thresholds in 2026, now is the right time to move to a properly structured outsourced bookkeeping arrangement. Setting up the workflow 6–12 months before the first quarterly deadline removes the pressure of getting it right under time constraints.
How to Set Up MTD-Compliant Outsourcing with an Indian CA Firm
The setup process for MTD-compliant outsourced bookkeeping is straightforward:
- Choose MTD-compatible software if you do not already use one. Xero is the most common starting point for UK businesses moving to outsourced bookkeeping.
- Sign a UK GDPR Data Processing Agreement with your Indian firm before sharing any financial data. This is non-negotiable for compliance — any reputable Indian CA firm provides one.
- Invite your Indian bookkeeper as an adviser in your software. They receive their own login; your admin access and payment control remain with you.
- Connect your bank feed in Xero or Sage. Your Indian bookkeeper codes transactions from the live feed — no spreadsheets, no emailing bank statements.
- Establish the quarterly review process. Your bookkeeper flags the VAT return (or quarterly ITSA summary) as ready for review. You review the figures and submit via your HMRC-linked software account.
- Confirm the MTD submission ownership. Agree upfront who presses submit — you, or a UK-registered agent. This is the only step where your HMRC credentials are needed.
At Sharma Jyoti and Co, we work through this setup with every new UK client in the first week. Most clients are fully operational — with live bank feeds, adviser access, and first reconciliation done — within 5 business days.
Written by Sharma Jyoti, CA (ICAI) — Founder, Sharma Jyoti and Co. We are an ICAI-registered Chartered Accountant firm providing outsourced bookkeeping and accounting services to Australian, US, UK and Canadian businesses. Our team includes Xero Advisor Certified professionals (Certificate #17207818). Learn more about our firm →