Introduction
Running an ecommerce business is exciting, but when it comes to accounting and tax, things can quickly feel overwhelming—especially with the government’s new digital requirements. If you’re an online business owner or ecommerce entrepreneur, staying compliant with Making Tax Digital (MTD) is no longer optional.
In this blog, we’ll break down exactly what Making Tax Digital means for your business, how it affects your VAT obligations, and what steps you need to take to stay compliant—all explained simply and practically. Plus, we’ll show how our ecommerce accounting services can help you manage everything with ease.
What is Making Tax Digital (MTD)?
Making Tax Digital is a government initiative designed to make tax administration more effective, efficient, and easier for businesses. It requires businesses to maintain digital records and submit their tax returns using MTD-compliant software.
Key Points to Understand:
- MTD for VAT: Businesses with a taxable turnover above £90,000 must keep digital VAT records and use software to file VAT returns.
- Future Expansion: MTD will soon apply to Income Tax Self-Assessment (ITSA) and Corporation Tax in future phases.
- Mandatory Digital Records: Paper-based records are no longer acceptable once you fall under MTD rules.
Example:
If you sell products through Shopify, Etsy, or Amazon, you must keep all sales records digitally and use MTD-compatible software to submit VAT returns.
How Does MTD Affect Ecommerce Businesses?
For ecommerce entrepreneurs, MTD brings both opportunities and challenges.
Here’s how MTD impacts your online business:
1. Digital Record Keeping
You must store:
- Sales invoices
- Purchase invoices
- VAT transactions
Tip: Use accounting software like Xero, QuickBooks, or FreeAgent (all MTD-compliant) to automate your records.
2. Timely VAT Submissions
You are required to:
- Submit VAT returns every quarter
- Ensure submissions are done through MTD software
- Avoid penalties for late filings
Helpful Link: Learn more about our VAT Return Services
3. Integration With Ecommerce Platforms
Choose accounting software that connects with:
- Shopify
- Amazon Seller Central
- eBay
- WooCommerce
This allows automatic importing of sales and expenses, saving you hours of manual data entry.
4. New Penalties System
HMRC has introduced a new points-based penalty system:
- Late submission or payment = points
- Accumulated points = fines
Staying compliant isn’t just smart—it protects your profits.
Steps to Get Your Ecommerce Business Ready for MTD
Follow these simple steps to stay ahead:
Step 1: Check If You’re Affected
- Turnover above £90,000? MTD for VAT applies now.
- Turnover below? It will still apply soon, so it’s wise to prepare.
Step 2: Choose MTD-Compliant Software
Select software that fits your ecommerce operations and integrates well with your selling platforms.
Popular Choices:
- Xero
- QuickBooks
- Sage Business Cloud
Step 3: Digitise Your Records
Start uploading:
- Purchase receipts
- Sales invoices
- VAT adjustments
Step 4: Register for MTD with HMRC
You cannot simply continue using the old VAT portal; you must:
- Register your business for MTD via HMRC.
- Authorise your accounting software.
Step 5: Get Professional Support
MTD can feel like a minefield.
An accountant familiar with ecommerce accounting services can ensure everything is done correctly, giving you more time to focus on growing your business.
Helpful Link: Explore our Ecommerce Accounting Services
Common Questions About MTD for Ecommerce Sellers
What if I sell across multiple platforms?
You still need a unified record for all sales. Good accounting software can consolidate this automatically.
Do I need to keep digital copies of receipts?
Yes, for all VAT-related purchases, but uploading scanned copies into your accounting system is sufficient.
What happens if I don’t comply with MTD?
You risk financial penalties and HMRC scrutiny, which can seriously harm your business.
Conclusion
Making Tax Digital isn’t just a regulatory requirement—it’s an opportunity to streamline your ecommerce accounting and make smarter business decisions. By embracing digital record-keeping and using MTD-compliant software, you can reduce errors, avoid penalties, and focus on scaling your business. Need expert help to make your ecommerce business MTD-ready?
Book a free consultation with Centralyze Accounting today and let us take the stress out of tax compliance for you.