Is Your ERP Ready for Making Tax Digital (MTD)? Business Central and HMRC Integration Explained

Are you MTD ready? Adopt Business Central for Making Tax Digital. Let’s understand what’s happening.

Tax rules are changing fast in the UK. HMRC’s Making Tax Digital (MTD) programme is one of the biggest shifts for businesses, especially when it comes to VAT. If you're still using spreadsheets or old software to manage taxes, you're not up to date and are working less efficiently than your competitors.

According to HMRC reports, over 1.7 million businesses have already signed up for MTD. By 2026, even more businesses, including smaller companies and landlords, will need to file taxes digitally. Getting your system ready now is no longer optional. It’s a smart move to avoid penalties and make tax reporting smoother.

This blog explains how Business Central Making Tax Digital features work, how HMRC integration works, and why this ERP solution is a great fit for businesses that want to stay compliant with less hassle.

What is Making Tax Digital (MTD)?

Making Tax Digital (MTD) is HMRC’s plan to move UK businesses toward digital tax reporting. The goal is to stop errors caused by paper-based records and manual entries. Instead, businesses must keep digital records and submit returns directly through software that links with HMRC.

This change helps HMRC receive more accurate data while giving businesses a clearer view of their tax obligations. Over time, MTD will expand to cover not just VAT but also income tax and corporation tax.

The Challenge: Is Your ERP Ready for Making Tax Digital?

Many older systems were never built with digital tax rules in mind. Businesses using spreadsheets or outdated ERP tools may struggle to meet MTD rules. Manual processes increase the chance of errors, especially when copying data between systems.

As MTD rules tighten, businesses that rely on these outdated systems risk missed deadlines, wrong submissions, and even penalties. That’s why many companies are now reviewing whether their current ERP system can fully support MTD requirements.

Why Use ERP for Making Tax Digital?

Using ERP software that supports MTD helps businesses avoid costly mistakes and wasted time.

• Stay compliant automatically: The software handles MTD rules in the background, reducing the risk of missed submissions or wrong data.
• Less manual work: No more copying figures into HMRC portals. The ERP sends returns directly, saving your finance team valuable time.
• Full audit trail: Every submission is recorded, so you have a clear history for HMRC audits if needed.
• Peace of mind: With built-in updates, you don’t have to worry about missing new HMRC changes or regulations.

HMRC Integration Business Central: Key Features

Microsoft Business Central includes built-in features that help businesses meet HMRC's MTD rules easily and offer many useful features, such as:

• Secure HMRC API integration: The system connects directly to HMRC’s servers using secure APIs, so data transfers safely and accurately.
• Simple VAT submission: VAT returns can be submitted in a few clicks, without exporting data or using third-party add-ons.
• Digital links compliance: Business Central automatically meets HMRC’s requirement for digital links between records, which reduces manual errors.
• Group VAT support: If your company files VAT as a group, Business Central handles multiple legal entities in one system.
• Submission history and tracking: You can view past VAT returns and check the status of current submissions at any time.
• Error validation: The system checks your return for common issues before submitting, helping you avoid rejected filings.

Business Central HMRC Connector: How It Helps

The HMRC connector in Business Central makes tax submission smooth and fully digital and enables these benefits.

• Direct connection to HMRC: No third-party software needed. VAT returns go straight from Business Central to HMRC.
• Up-to-date records: Once submitted, your VAT returns and submission history are stored for easy review later.
• Supports adjustments: The system can handle changes, corrections, and adjustments if figures change after submission.
• Status monitoring: You can track whether your submission was successful or if any issues need fixing right away.
• Less chance for errors: By keeping all VAT data in one place, there’s less risk of missing or misreporting information.

Who Should Use Business Central for Making Tax Digital?

Business Central for Making Tax Digital is a good fit for many types of businesses facing complex VAT reporting. Let’s know more about it.

• Growing businesses: Companies that are adding new customers, locations, or products will benefit from Business Central’s flexibility as they scale.
• Multi-location companies: Businesses with warehouses, offices, or shops in different areas can manage VAT for all locations from one system.
• International traders: Companies selling goods or services across borders will find Business Central’s multi-country VAT support useful.
• Finance teams wanting less admin: Businesses that want to cut manual tax work and focus more on financial planning or business growth.

Key Benefits of Using ERP for Making Tax Digital

Switching to ERP for MTD brings clear benefits for finance teams and business owners, which include:

• Compliance peace of mind: The system tracks rules, files VAT returns correctly, and helps avoid HMRC penalties.
• Time savings: Automated VAT calculation and submission reduce the time spent preparing returns, freeing up staff for higher-value work.
• Fewer mistakes: Digital links and error checks catch issues before submission, lowering the chance of rejected returns.
• Better visibility: Business Central offers real-time reports, so finance managers can spot problems early and stay on top of tax liabilities.
• Simpler audits: When HMRC requests an audit, all records are ready to go, cutting down on audit preparation stress and time.

Final Thoughts

The sooner your business adapts to Making Tax Digital, the easier VAT reporting becomes. Manual submissions and outdated systems often lead to errors, missed deadlines, and HMRC penalties. As HMRC continues to expand MTD to cover more taxes, preparing early helps avoid future problems.

Microsoft Business Central makes this process simple. VAT returns are filed directly from the system, with all data linked, calculated, and stored for audits. You don’t need extra tools or spreadsheets, reducing the risk of mistakes. The system stays updated with rule changes, so your finance team can focus on planning, budgeting, and supporting growth.

For businesses managing multiple entities or cross-border transactions, Business Central also handles group VAT filings and gives a clear view of tax positions across the company. Using Business Central for MTD isn’t just about staying compliant but also about giving you better control, saving time, and building confidence in your financial reporting as your business grows.

Ready to Simplify Your Tax Reporting?

Let Dynamics Square help you set up Business Central HMRC Integration and make your business fully MTD-ready. Contact us today to get started!