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Compliance

What is Making Tax Digital (MTD)?

Making Tax Digital is HMRC's initiative requiring businesses to keep digital records and submit tax information using compatible software.

Current Rate (2025/26)

Already mandatory for VAT. Income tax MTD from April 2026 for self-employed/landlords earning £50k+

Example

Instead of manual VAT returns, you use accounting software that submits directly to HMRC.

Key Dates

MTD for Income Tax: April 2026 (£50k+), April 2027 (£30k+)

How Making Tax Digital (MTD) Works in Practice

Making Tax Digital (MTD) is HMRC's long-term programme to modernise the UK tax system by requiring businesses and individuals to keep digital records and submit tax information through MTD-compatible software. The programme is being rolled out in phases, starting with VAT and expanding to Income Tax Self Assessment.

MTD for VAT has been mandatory since April 2022 for all VAT-registered businesses, regardless of turnover. This means you must keep your VAT records digitally (not in spreadsheets unless they have a digital link to submission software) and submit your VAT returns through MTD-compatible software rather than manually entering figures into the HMRC online portal.

MTD for Income Tax Self Assessment (MTD for ITSA) is the next phase. From April 2026, self-employed individuals and landlords with gross income over £50,000 must comply. From April 2027, the threshold drops to £30,000. Under MTD for ITSA, qualifying individuals must submit quarterly updates to HMRC through compatible software, plus a final end-of-period statement and a final declaration. This is a significant change from the current annual Self Assessment system.

For limited company directors, MTD for Corporation Tax has not yet been mandated with a start date, though HMRC has indicated it will come eventually. For now, the main MTD obligation for a limited company is MTD for VAT if the company is VAT-registered. Directors who are self-employed or landlords in their personal capacity may also be affected by MTD for ITSA.

Step by Step

For MTD for VAT, you use compatible software to record your sales and purchases throughout the quarter. The software must maintain digital records that link directly to the VAT return submission. At the end of each quarter, you review the figures, make any adjustments, and submit the return through the software's API connection to HMRC. You cannot log into the HMRC portal and type in the nine boxes manually.

Digital links are a key requirement. If you use multiple systems (for example, a spreadsheet for some calculations and accounting software for submission), the data must flow between them digitally, not by being manually retyped. Copy-and-paste is not considered a digital link. This means your entire record-to-return process must be connected electronically.

For MTD for ITSA (from April 2026), qualifying individuals must submit a quarterly update within one month of the end of each quarter (quarters ending 5 July, 5 October, 5 January, and 5 April). These updates summarise income and expenses for the quarter. An end-of-period statement is submitted after the end of the tax year, and a final declaration replaces the current Self Assessment tax return.

Practical Tips

  • If you are VAT-registered, ensure your accounting software is on HMRC's list of MTD-compatible products and that you are submitting returns through the software, not the HMRC portal
  • Check whether your personal income from self-employment or property puts you in scope for MTD for ITSA from April 2026, and start preparing early
  • Audit your digital links between systems to ensure there is no manual data entry in the chain from records to submission
  • Use cloud-based accounting software that automatically updates for MTD compliance changes rather than desktop software that may fall behind

Common Mistakes to Avoid

  • Using spreadsheets to keep VAT records without a digital link to MTD-compatible submission software, which breaches the digital record-keeping requirement
  • Manually entering VAT return figures into the HMRC online portal instead of submitting through MTD-compatible software
  • Assuming MTD only applies to large businesses when MTD for VAT applies to all VAT-registered businesses regardless of size
  • Not checking whether personal income from self-employment or property will bring you into scope for MTD for ITSA from April 2026

Frequently Asked Questions

Do I need MTD-compatible software?

If your company is VAT-registered, yes. You must use MTD-compatible software to keep digital records and submit VAT returns. HMRC publishes a list of compatible software on GOV.UK. Most mainstream accounting packages like Xero, QuickBooks, FreeAgent, and Sage are compatible.

Does MTD apply to Corporation Tax?

Not yet. HMRC has not set a start date for MTD for Corporation Tax. Currently, MTD only applies to VAT (all VAT-registered businesses) and will apply to Income Tax Self Assessment from April 2026. Corporation Tax returns are still filed through the existing online system.

What are digital links under MTD?

Digital links mean that data flows electronically between different software systems without manual intervention. If you use a spreadsheet to calculate adjustments and then submit through accounting software, the data must transfer digitally, not by being manually retyped. Copy-and-paste does not count as a digital link.

When does MTD for Income Tax start?

MTD for Income Tax Self Assessment starts in April 2026 for self-employed individuals and landlords with gross income over £50,000. From April 2027, it extends to those with income over £30,000. This affects directors personally if they have self-employment or property income alongside their company income.

Can I use a spreadsheet for MTD?

You can use spreadsheets as part of your record-keeping, but only if there is a digital link to MTD-compatible software for submission. You cannot use a standalone spreadsheet and then manually enter figures. HMRC-recognised bridging software can create the digital link between spreadsheets and HMRC.

Source: HMRC MTD Guidance - Making Tax Digital for VAT: GOV.UK

Related Terms

VAT Return

A VAT return is a regular submission to HMRC showing the VAT you've charged (output VAT) and paid (input VAT), with the difference paid or reclaimed.

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