Everything You Need to Know About Making Tax Digital in the UK

Making Tax Digital (MTD) is the UK government’s initiative to modernise tax reporting by requiring businesses to keep digital records and submit VAT, income, and other taxes electronically. It aims to simplify compliance, reduce errors, and provide HMRC with real-time financial data.

In this guide, we explain everything UK businesses need to know about MTD, including which businesses are affected, key digital record-keeping requirements, filing processes, and deadlines. By implementing these practices, businesses can stay compliant, streamline accounting workflows, and leverage digital tools to reduce errors and optimise tax management.

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What is Making Tax Digital (MTD)?

Making Tax Digital (MTD) is a UK government initiative designed to modernise tax reporting by requiring businesses to keep digital records and submit tax information electronically. MTD initially targets VAT-registered businesses but will expand to income tax and corporation tax in phases.

By using compatible accounting software, businesses can automatically record sales, purchases, and expenses, generating accurate reports and VAT submissions. Implementing MTD reduces errors, ensures compliance with HMRC, and streamlines bookkeeping. Businesses leveraging MTD gain real-time insights into their tax obligations, making financial management more efficient and reducing the risk of penalties.

Is Making Tax Digital Mandatory for VAT?

Yes. MTD for VAT is already in effect for all VAT-registered businesses. Since April 2022, every VAT-registered business, regardless of turnover, must keep digital records and submit VAT returns using MTD-compliant software.

This means even small VAT-registered businesses below the registration threshold who have voluntarily registered for VAT are required to comply.

What Is MTD for Income Tax Self-Assessment (ITSA), and When Does It Start?

MTD for income tax self-assessment (ITSA) starts on 6 April 2026 and is being introduced in phases based on qualifying income. It replaces the traditional annual Self-Assessment return with digital recordkeeping and quarterly submissions to HMRC.

The income tax rollout happens in phases based on how much you earn: over £50,000 from April 2026, and over £30,000 from April 2027. A planned third phase for those earning over £20,000 has been put on hold, the government has confirmed that businesses under the £30,000 turnover threshold will remain outside MTD for the time being, with their position kept under review.

Who Needs to Comply with MTD for Income Tax in 2026?

You are in scope for MTD for ITSA from April 2026 if you are self-employed as a sole trader or receive income from UK property (or both), and your combined qualifying income from these sources exceeds £50,000 per year. You must also be required to file a Self-Assessment tax return.

You are currently exempt if you are a limited company, a partner in a partnership (separate rules apply later), below the income threshold, or have certain digital exclusion grounds.

Note: The government quietly shelved its plans to extend MTD to Corporation Tax in July 2025, which removes a major administrative burden for incorporated businesses. If you operate as a limited company, MTD for ITSA does not apply to you directly.

Does MTD for Income Tax Apply to Landlords and Partnerships?

Yes, for landlords. From 6 April 2026, MTD for ITSA applies to businesses, including partnerships and landlords, whose total annual gross income from self-employment and/or property exceeds £50,000.

For partnerships specifically, the date for partnerships to be mandated into MTD has yet to be determined, though the government remains committed to eventually bringing partnerships into the regime as part of its broader tax administration strategy.

What Are the Key MTD Deadlines to Know?

UK businesses must track critical MTD deadlines to stay compliant with HMRC requirements. Key milestones include the initial VAT mandate, the phased rollout of MTD for Income Tax Self-Assessment (ITSA), and the gradual inclusion of lower-income thresholds. Adhering to these dates ensures timely submissions, prevents penalties, and allows businesses to leverage digital record-keeping for efficient tax management.

What Do I Need to Do to Become MTD-Compliant?

Becoming compliant with Making Tax Digital (MTD) requires UK businesses to transition from paper-based records to digital systems. This ensures accurate, timely submissions to HMRC and reduces the risk of errors or penalties.

• Keep digital records of income and expenses using MTD-compatible software (rather than spreadsheets or paper records alone)
• Submit quarterly updates to HMRC summarising income and expenditure
• File using approved software that connects directly to HMRC’s systems, popular options include QuickBooks, Xero, Sage, and FreeAgent
• Authorise HMRC to access your digital records electronically

Where a business has an annual turnover below the VAT registration threshold, it may choose to report the total of all income and expenses for the quarter, rather than breaking figures down by category.

What Challenges Do Businesses Face When Implementing MTD?

Implementing Making Tax Digital (MTD) can be challenging for businesses due to technical, financial, and operational hurdles. Understanding these common issues helps companies prepare, reduce errors, and ensure a smooth transition to digital tax compliance.

• Lack of preparedness, missing registration deadlines or not having systems in place in time, leading to last-minute scrambling
• Software incompatibility, existing accounting tools that don’t connect properly with HMRC’s systems
• Increased costs, the need to invest in new software or additional staff, which hits small businesses hardest
• Staff training, ensuring teams understand how to use new systems correctly, especially in larger organisations
• Testing gaps, failing to test new systems with real data before go-live, which can cause filing errors down the line

Master Making Tax Digital with Professional Outsourced Accounting Partner

Adhering to Making Tax Digital (MTD) is critical for UK businesses to stay compliant and avoid fines. Accurate digital record-keeping and timely submissions reduce errors and ensure smooth financial operations.

At Whiz Consulting, our team of expert accounting services providers helps businesses implement MTD seamlessly. From automating VAT filings to maintaining compliant digital records, we ensure your accounts are accurate, up-to-date, and fully aligned with HMRC requirements. Partner with us to simplify MTD compliance, reduce administrative stress, and focus on growing your business confidently in 2026.