What is Making Tax Digital (MTD)?

Making Tax Digital is digitising the UK tax system for businesses and individuals, representing an essential part of the government’s plan for HMRC to become ‘one of the most digitally advanced tax administrations in the world’.² (external link) 

A key part of this ambition is to change how the system operates to ensure it’s ‘easier for taxpayers to get their tax right’ by making administration more efficient.³ (external link) 

Currently, MTD applies to all VAT-registered UK businesses, regardless of turnover. It requires them to keep digital tax records and use compatible accounting software to manage VAT returns with HMRC. 

As of April 2026, self-employed professionals and landlords whose qualifying income is over £50,000 based on their 2024-25 tax return must also use MTD.⁴ (external link)

April 2019: MTD for VAT became mandatory for VAT-registered businesses with a turnover above £85,000. 

April 2022: MTD for VAT extended to all VAT-registered businesses regardless of turnover, including VAT-registered charities. 

April 2026: MTD for Income Tax Self-Assessment (MTD ITSA) becomes mandatory for self-employed individuals and landlords with annual qualifying income over £50,000. 

April 2027: MTD ITSA threshold drops to £30,000 annual qualifying income for self-employed individuals and landlords. 

April 2028: MTD ITSA threshold further reduced to £20,000 annual qualifying income, bringing more small businesses and landlords into the scheme. 

Corporation Tax MTD: Timeline remains under consideration.

To sign up for MTD (external link), you typically need to: 

• Create or access your Government Gateway account with user ID and password.
• Provide or confirm your VAT registration number.
• Enter relevant business information.
• Confirm and submit your details.
• Wait to receive confirmation that you can now start using MTD. 

Different applicants might need additional documentation. For example: 

• Sole traders need their National Insurance number, VAT registration number, and Government Gateway login details.
• Partnerships need their Unique Taxpayer Reference (UTR), registered Self Assessment postcode, VAT registration number, and Government Gateway login details.
• Limited companies need their company registration number, Unique Taxpayer Reference (UTR), VAT registration number, and Government Gateway login details.

Businesses using MTD need to keep and maintain certain records using digitally compatible software. These requirements differ slightly depending on whether you’re using MTD for VAT or Income Tax Self-Assessment. 

MTD for VAT:  (external link)

• Your business name and contact details.
• Your VAT registration number and any VAT accounting schemes used.
• The VAT on goods and services you supply and receive.
• Adjustments made to VAT returns.
• The time and value (excluding VAT) of each supply made and received.
• The VAT rate charged on each supply.
• Details of reverse charge transactions (both sales and purchases).
• Total daily gross takings (if using a retail scheme).
• Purchases eligible for VAT reclaim (if using the Flat Rate Scheme).
• Total sales including VAT (if using the Gold Accounting Scheme).
• Documentation for multiple transactions made by employees, third parties, or volunteers on behalf of the business.

 MTD for ITSA: (external link) 

• Business income and expenses, recorded at the transactional level.
• Date, amount, and category of each transaction (such as travel, rent, utilities).
• Digital copies of invoices and receipts, where possible.
• Separate records for each business or property income stream.
• Quarterly updates submitted to HMRC via MTD-compatible software.
• End-of-period statements and a final declaration to confirm all income and adjustments.

Using compatible software that connects directly to HMRC systems can help you stay MTD compliant. 

There are various software providers to choose from, including:

Features may vary depending on which plan you choose, so it can be useful to compare plans and providers. You can find a full list of compatible software (external link) for Making Tax Digital at GOV.UK

The cost of MTD compliance can vary significantly depending on your business size and other factors. 

When MTD for Income Tax Self Assessment launches in 2026, GOV.UK (external link) suggests businesses can expect the initial transition to cost around £300 per business, with smaller businesses (earning £30,000-£50,000) facing slightly higher setup costs compared to larger ones. Annual ongoing expenses – things like software subscription fees – are expected to total approximately £110-£115 per business. Software costs are tax-deductible. 

However, businesses are also expected to find increased operational efficiency and fewer calculation errors. HMRC has free webinars and videos (external link) to help small businesses manage the transition.

Making Tax Digital is expected to have many benefits for businesses, including:

• Fewer errors and penalties: Manual data entry can lead to errors in VAT returns and income tax calculations, so MTD can help businesses avoid penalties and corrections.
• Improved financial visibility: Real-time reporting and automated data capture can help businesses track their taxes through the quarter, rather than scrambling before deadlines.
• Better cash flow management: Enhanced oversight can enable better budgeting, as businesses can view up-to-date estimates of tax owed at any time.
• Streamlined bookkeeping: MTD-compatible software typically includes automated bank fees and receipts capture, saving time on manual admin.
• Easier HMRC compliance: Keeping digital records can make it easier to respond to HMRC enquiries.