A short guide to Making Tax Digital for hospitality

This article was updated on Thursday 21 December 2023.

The hospitality industry is no stranger to new challenges. From pandemic restrictions to Making Tax Digital (MTD), hospitality businesses have had to stay agile and adapt to many changes in the past few years.

In this guide, we’ll look at what the government’s Making Tax Digital initiative means for your hospitality business in practical terms. We’ll also explore how the additional benefits of digitisation and cloud-based accounting software can help you run a healthier business.

A closer look at MTD for hospitality

What is MTD? 

MTD forms part of the UK government’s plan to digitise the tax system, and make submitting your returns easier. Under MTD rules, businesses must keep digital records and submit their returns to HMRC using MTD-compatible software.

When do I need to comply with MTD?

There is a threshold system in place for MTD, which means businesses must comply in stages, depending on their business type and turnover

If your annual taxable turnover is £85,000 or above
You should already be submitting MTD-compliant VAT returns. From April 2019, VAT-registered businesses with an annual turnover above £85,000 started keeping digital records and submitting VAT returns using MTD compatible software.

If you’re VAT-registered but earn under the £85,000 threshold
You’ll be affected by the second stage of MTD for VAT, from April 2022. All VAT-registered businesses need to follow MTD rules from this date, unless they are exempt. If you run a VAT-registered business, sign up for MTD now.

Under the new rules, you’ll need to keep and maintain digital records and submit VAT returns directly to HMRC using MTD-compatible software. 

MTD for VAT does not require you to keep any additional records than usual. But you will need to input daily totals instead of weekly or monthly ones. That doesn’t mean you need to do your accounting every day, just make sure you input daily totals when you do.

If you’re not VAT-registered (but are self-employed)
If you’re self-employed with turnover above £50,000 annually, you will need to follow MTD for Income Tax (ITSA) rules from April 2026. 

It’s important to note that all business and/or property income counts towards the £50,000 threshold. So, if you run a homeware shop that makes £30,000, but you’re also making £22,000 a year in property income, you’ll need to comply with ITSA rules.

General partnerships and those earning less than £30,000 are yet to be mandated. If you earn below the £30,000 threshold, you can continue using the existing HMRC system to submit your self assessment tax returns.

Learn more in our extensive guide to MTD for the hospitality industry.

Why hospitality business owners should choose Xero for MTD-compatible software

It’s really important to choose MTD software that supports your hospitality business as a whole. The right MTD-compatible software should not only make managing your tax obligations easier, but also make it easier to manage your business finances, and simpler to collaborate with your accountant.

Xero is home to a vast library of app integrations and features that make running your hospitality business easier, every day. For example you can:

1. Take and track card payments easily with point of sale integrations that integrate directly with Xero,
2. Know where your business stands at a glance with Xero’s real-time dashboard and stay on top of your cashflow on the go using the Xero app.
3. Simple inventory functionality lets you save details of things you buy and sell regularly, as well as track the quantities and values of items you have in stock.
4. Set up recurring invoices for regular suppliers to cut down on monthly admin. You’ll only need to input the data once, and there’s no risk of them being missed or left unpaid. 

Learn more about why Xero’s MTD for VAT solution is one of the UK’s most popular ways to submit a MTD VAT return. Or, if you want to learn more about what Making Tax Digital means for you, download our full guide to MTD for hospitality business owners.