2 min read Making Tax Digital

What Is Making Tax Digital (MTD) and How to Prepare

Everything UK businesses and individuals need to know about Making Tax Digital — what it covers, the timeline, and how to get ready.
What Is Making Tax Digital (MTD) and How to Prepare

Making Tax Digital (MTD) is HMRC's multi-year programme to digitise the UK tax system. The aim is to reduce errors — HMRC estimates that £8.5 billion of the UK's tax gap is caused by avoidable mistakes — by requiring businesses and individuals to maintain digital records and submit data to HMRC via compatible software rather than manual returns.

MTD for VAT — Already in Force

MTD for VAT has applied to all VAT-registered businesses since April 2022. You must maintain digital records of VAT transactions and submit your VAT return via MTD-compatible software. The software must maintain a digital audit trail — you cannot enter figures manually into HMRC's portal. Compatible software includes Xero, QuickBooks, Sage, FreeAgent, and many others. HMRC's own basic tool (HMRC's Making Tax Digital for VAT) is also available for very simple VAT affairs.

MTD for Income Tax Self-Assessment (MTD ITSA)

MTD for Income Tax Self-Assessment will be introduced in phases. From April 2026, it will apply to self-employed individuals and landlords with qualifying income above £50,000. From April 2027, it will extend to those with qualifying income above £30,000. The threshold for those earning between £20,000 and £30,000 will be consulted on separately.

Under MTD ITSA, instead of one annual Self-Assessment return, you will need to submit: quarterly updates to HMRC (every three months, summarising your income and expenses), an end-of-period statement (confirming and adjusting your figures annually), and a final declaration replacing the current Self-Assessment return.

What MTD ITSA Means in Practice

You will need to use MTD-compatible software to maintain digital records throughout the year. Each quarter (for periods ending 5 April, 5 July, 5 October, 5 January), you must submit a summary of income and expenses to HMRC. HMRC will give you an estimate of your tax position based on each quarterly submission. The final declaration, completing your annual position, will be due by 31 January as now.

MTD for Corporation Tax

MTD for Corporation Tax is still in consultation and no mandatory start date has been confirmed. It is unlikely to be introduced before 2026 at the earliest. Watch for updates at gov.uk/government/collections/making-tax-digital.

How to Prepare Now

Even if you are below the April 2026 threshold, preparation is worthwhile. Choose MTD-compatible accounting software and connect your bank accounts via Open Banking so transactions are imported automatically. Review your current record-keeping — moving from paper or spreadsheets to digital records takes time and training. Consider working with an accountant familiar with MTD-compliant processes.

If you are already using cloud accounting software such as Xero, QuickBooks, or FreeAgent, you are likely already equipped — check that your software provider has confirmed MTD ITSA compatibility for the 2026 phase. Spreadsheets can be used with bridging software if you prefer to keep them, but the additional complexity makes purpose-built software preferable.

Penalties for Non-Compliance

HMRC will introduce a points-based late submission penalty for MTD ITSA similar to the VAT regime. Points accumulate for missed quarterly submissions, and a financial penalty is triggered when you reach a threshold. HMRC has indicated a soft landing approach initially, but compliance will be enforced rigorously over time.

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