What is Making Tax Digital (MTD)?

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.

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.