Digital Record-Keeping and Making Tax Digital (MTD) for Travel Agents and Hotels

Digital Record-Keeping and Making Tax Digital (MTD) for Travel Agents and Hotels

The UK government’s Making Tax Digital (MTD) initiative is entering its next phase in April 2026, and this time it will reach far beyond large VAT-registered companies. From independent travel agents to boutique hotels, most hospitality and travel businesses will be required to maintain digital accounting records and submit tax data electronically to HMRC. MTD for VAT has been mandatory for all VAT-registered businesses (regardless of turnover) since April 1, 2022; the 2026 phase-out applies specifically to Income Tax Self Assessment (ITSA) for sole traders and landlords.

For the travel and hospitality sector, where VAT rules, client-money handling, and multiple booking platforms already create complexity, MTD is more than just an IT upgrade. It changes how you record every booking, refund, and supplier payment, and how you prove compliance to HMRC.

1. What Making Tax Digital actually means

Making Tax Digital is HMRC’s long-term plan to eliminate paper-based tax administration. It requires businesses to:

• Keep digital accounting records (no manual spreadsheets or paper ledgers).

• Use HMRC-approved software that links directly to the tax portal via API.

• Submit returns and transaction data electronically on a quarterly basis.

MTD for VAT has technically been mandatory since April 2022, but HMRC granted transition periods for small entities and agents. The upcoming MTD for Income Tax Self Assessment (ITSA) from April 2026 will cover:

• Sole traders and partnerships earning over £50,000 annually (threshold expected to reduce to £30,000 from April 2027).

• Landlords, property owners, and individuals with mixed hospitality income.

Many travel agents fall under both VAT and ITSA, meaning dual compliance obligations.

2. Why Travel and Hospitality Businesses face extra Complexity

Travel agents and hotels operate under multiple VAT and accounting frameworks—TOMS (Tour Operators’ Margin Scheme), ATOL trust accounts, or standard VAT schemes. Each interacts differently with MTD:

• TOMS agents must still maintain digital evidence of underlying sales and costs, even though only margin VAT is reported.

• ATOL and ABTA-registered firms must reconcile trust-account data with digital ledgers to show that client money remains separate.

• Hotels and B&Bs using OTAs (Booking.com, Expedia, Airbnb) must capture VAT details from multiple sources and import them digitally into their accounting software.

In other words, MTD doesn’t simplify your VAT, it simply makes your processes visible to HMRC in real time.

3. The End of Manual Workarounds

Many small travel businesses still maintain part-manual systems: spreadsheets for commission tracking, offline invoices for supplier payments, or handwritten expense logs. Under MTD, these are no longer compliant.

To meet the requirements, every VAT and income transaction must pass through a digital link, that means data moves electronically from booking systems, POS, or PMS software into your accounting platform without re-keying. HMRC has made clear that copy-and-paste no longer qualifies as digital record-keeping.

4. Choosing the Right Accounting System

HMRC maintains a long list of software approved for Making Tax Digital, but not every system suits the travel and hospitality industry. The right choice depends on your size, business model, and how your sales are recorded.

For small travel agents, platforms such as Xero or QuickBooks Online are often the best place to start. They connect easily to booking systems, can track client money, and handle commission-based reporting without heavy setup.

For tour operators working under TOMS, systems like Sage Accounting combined with a bridging tool are usually stronger. They provide more detailed VAT control and allow you to keep a clean audit trail from your cost base through to the margin calculation.

If you run a boutique hotel or B&B, Xero can also work well, particularly if you integrate it with your property management system (PMS) such as Little Hotelier or Guestline. This allows bookings, deposits, and invoices to flow automatically into your accounts, which is essential for digital compliance.

Larger travel companies or ATOL-licensed operators tend to need something more robust, such as NetSuite, AccountsIQ, or Exact Online, which can manage multiple entities, trust accounts, and consolidated reporting while still maintaining a digital link to HMRC’s API.

Whichever system you choose, make sure it can record every transaction in full detail, provide a clear audit trail from each booking through to VAT submission, and link directly to HMRC. Bridging software remains acceptable for now, but HMRC has made clear that it should be treated as a temporary solution rather than a permanent fix.

When evaluating systems, ensure the following:

1. It maintains complete transaction-level detail, not summary entries.

2. It provides a clear audit trail from booking to tax submission.

3. It integrates or bridges directly to HMRC’s MTD API.

Bridging software is still allowed, but HMRC expects it to be a temporary measure, not a permanent workaround.

Although written for our US market, please also see blogs on Choosing the Right Accounting System for Your Hotel and Best Accounting Systems for Travel Agents in 2025. We will shortly do an accounting system blog for our UK clients.

5. Preparing for April 2026

MTD will bring the same level of scrutiny to smaller travel businesses that listed companies already face under FRS 102 or IFRS 15. Preparation should start early.. With less than a year and a half before MTD expands, every travel agent, tour operator, and hotel should be treating 2025 as their implementation year. The most successful transitions happen when businesses approach MTD as a process-improvement project, not just a compliance exercise.

Step 1 – Map every financial data source.
List where each piece of financial information originates so booking systems, PMS, supplier invoices, card processors, and bank accounts. Then check which ones already connect digitally to your accounting software. Anything that still involves downloading reports or typing figures into spreadsheets will need integration or replacement before the MTD start date.

Step 2 – Review your VAT scheme and ensure compatibility.
Travel agents under TOMS, tour operators running multiple VAT regimes, and hotels using flat-rate or partial-exemption methods all need to confirm that their accounting software can process VAT correctly. A TOMS margin cannot simply be posted as a normal sales transaction. The system must reflect cost of sale and output VAT on the margin, not total income.

Step 3 – Align your chart of accounts with digital reporting.
This is one of the most overlooked tasks. HMRC expects digital audit trails that show how each VAT figure is built. Your chart of accounts should clearly distinguish between income categories (for example, commission, package sales, accommodation, F&B, and ancillaries) and expense categories tied to those sales. Clean mapping avoids reconciliation issues when VAT or income tax data is transmitted.

Step 4 – Train your team early.
Many non-finance staff will now be part of the MTD process, including reservations, operations, and sales teams. They need to understand the importance of data accuracy, VAT coding, and digital receipts. Provide internal training sessions or simple guides that show how daily actions feed into the MTD submission.

Step 5 – Run a digital audit before the deadline.
An internal dry run. where you simulate an MTD submission using real data, helps identify breaks in your digital chain, rounding issues, or unlinked records. It also ensures you can produce audit evidence instantly if HMRC requests a review.

Step 6 – Keep contingency and version control.
After April 2026, all VAT and ITSA submissions will be quarterly. Missing a deadline will now add points under HMRC’s new penalty system. Designate a responsible person, create a submission calendar, and use software that provides automatic reminders and version tracking.

By preparing early, you will avoid disruption, but more importantly, you will gain stronger financial data. For travel agents and hotels, MTD can actually become a competitive advantage, offering real-time profitability tracking, faster reconciliations, and improved accuracy across bookings and supplier payments.

6. What happens if you don’t comply?

HMRC has replaced its traditional VAT default surcharge system with a points-based penalty regime. Under MTD:

• Each missed or late submission earns a point.

• After four points, a £200 penalty applies for every subsequent late submission.

• Interest accrues from the due date of payment until the date HMRC receives it.

Beyond penalties, repeated non-compliance can trigger an HMRC compliance visit, particularly for travel firms with complex VAT profiles or high refund claims.

7. Common Setup Mistakes

Many travel and hospitality businesses have already registered for Making Tax Digital but still risk non-compliance because of how their systems are configured. The most common issues we see at Antravia are practical, not technical, and they can lead to incorrect submissions or audit gaps if left unchecked.

1. Recording commissions off-system.
A frequent mistake among independent agents is keeping commission statements in Excel or PDF format and entering only monthly totals into the accounts. Under MTD, HMRC expects each commission to exist as a digital transaction within the accounting ledger. If you sell through Booking.com or Jet2holidays, each commission should flow electronically from your booking platform or CRM into your accounting software.

2. Mixing client money and business income.
ATOL and ABTA rules already require separation of client funds, but MTD adds a further control point. If client deposits and business income sit in the same bank feed, your accounting data may appear inconsistent with your trust-account records. Always maintain distinct ledgers and ensure both connect digitally to your MTD software.

3. Bridging tools with manual imports.
Some businesses use bridging software but still rely on exporting spreadsheets and importing CSVs. This breaks the digital link. HMRC defines a digital link as an unbroken electronic chain, data must transfer automatically, not by copy-paste or manual upload.

4. VAT codes not aligned to TOMS or exemptions.
Generic accounting software often applies standard VAT rates, which can distort travel-specific transactions. Margin-based VAT under TOMS must be handled through correct codes and mapping. A misclassification may lead to overpayment or under-declaration of VAT.

5. PMS or booking system not mapped to accounting categories.
Hotels and guesthouses using PMS software such as Guestline or Cloudbeds sometimes post all revenue as “Sales”. Under MTD, you should categorise room income, breakfast, F&B, and packages separately to preserve accurate reporting and audit evidence.

Small details like these matter because MTD data is transmitted in structured form. HMRC can easily identify gaps, missing invoice sequences, or inconsistencies between gross income and VAT declarations. A clean setup today avoids potential queries or penalties later.

7. How Antravia UK can help

At Antravia UK, we help travel agents, hotels, and tour operators transition to fully digital accounting systems that meet both MTD and industry-specific rules. From mapping TOMS VAT into your digital ledgers to designing compliant client-money reporting, we work with you to modernise your finance function before the 2026 deadline.

References - Making Tax Digital 2026: What UK Travel Agents and Hotels need to do now

1. HM Revenue & Customs. Making Tax Digital for VAT Notice 700/22 (2024 edition). https://www.gov.uk/government/publications/vat-notice-70022-making-tax-digital-for-vat

2. HMRC. Making Tax Digital for Income Tax Self Assessment. https://www.gov.uk/guidance/sign-up-your-business-for-making-tax-digital-for-income-tax

3. Civil Aviation Authority. Financial Requirements for ATOL Holders (CAP 752). https://www.caa.co.uk/commercial-industry/atol/

4. HM Treasury. Digitalisation of Business Tax: Policy Paper (2025). https://www.gov.uk/government/publications

Disclaimer

This article is provided for general information purposes only and does not constitute accounting, tax, or legal advice. Regulations, tax rules, and reporting requirements may change, and their application can vary depending on your business structure and circumstances. Readers should seek professional guidance from a qualified accountant or adviser before making any financial, tax, or compliance decisions. Antravia UK accepts no responsibility for any loss arising from reliance on the information contained herein.